Contractual Damages

As a general proposition when a contract has been breached the goal of the law is to compensate the innocent party (as opposed to punishing the guilty party). When it comes to contractual arrangements the idea is to place the plaintiff in the position he or she would have occupied if the contract had been properly performed in accordance with Robinson v Harman.

Whilst it is generally true to say that as soon as a contract has been breached the plaintiff is entitled to damages it must be kept in mind that in some cases that would be nominal damages only and not worth pursuing. In cases where serious losses are suffered and the other party is unwilling to make a settlement offer that is acceptable to you then formal proceedings may need to be considered but keep in mind the limitation periods.

Contrary to what most people understand a lawyer is in fact not obliged to commence proceedings for damages simply because a client asked for that to occur since he or she has to form a personal view that the case has reasonable prospects of success. That means the law effectively makes lawyers the gatekeepers of contractual litigation.

Potential Scenarios - Damages in Contract

  • In a contract for the sale of land there are sometimes instances when the vendor's title is defective. There used to be a legal rule derived from a case called Bain v Fothergill (1874) LR 7 HL 158 which permitted the purchaser in cases where the vendor's title is defective to only seek the recovery of the deposit, interest and the costs of investigating the title. That rule was abolished by s 54B of the Conveyancing Act so that the purchaser may claim against the vendor for loss of bargain damages under the contract for the sale of land (and s 55 (2A) may permit recovery of the deposit). Note that s 55 (2A) of the Conveyancing Act gives a wide discretion to the court regarding the recovery of a deposit often in cases where specific performance would not be granted.
  • A purchaser to a contract for the sale of land may be entitled to loss of bargain damages where a vendor fails to complete the sale. In other cases where there is only a delay the purchaser may be entitled to damages for the delay. If the vendor knows the purchaser intended to develop the land then there could be an argument that the purchaser should receive special damages such as lost profits but subject to the rule in Hadley v Baxendale.
  • Where a purchaser fails to complete under a contract for the sale of land the vendor may be able to sue for the difference between the contract price and the value of the land (offsetting the amount of the deposit paid) together with any costs costs spent marketing the property. It is doubtful that the vendor can sue for the interest payments made in respect of the mortgage unless the purchaser is fixed with "special knowledge".

Important Quotes in Cases on Contractual Damages

At no stage of this litigation has either party submitted that the assessment of the damages due for the vendor's breach of contractual warranty called for the modification of any principle, let alone the application of some new principle. There was, therefore, no dispute in this Court, or in the courts below, that a plaintiff who sues for breach of contract is to be awarded as damages "that sum of money which will put the party who has been injured ... in the same position as he [or she] would have been in if he [or she] had not sustained the wrong for which he [or she] is now getting his [or her] compensation or reparation". Nor was there, or could there have been, any dispute that when a contract has been breached, the position in which the plaintiff is to be put, by an award of damages, is the position in which the plaintiff would have been if the contract had been performed. - Clark v Macourt [2013] HCA 56

Let Us Help You

  • determine whether the facts matters and circumstances involved in your case satisfy the requirement of the law for there to be reasonable prospects for success before a claim for damages can be commenced;
  • help you determine, if there is an entitlement, whether you are likely to receive loss of bargain damages, reliance damages or perhaps both;
  • understand how the law approaches pre-contractual expenses;
  • consider whether reinstatement costs might be applicable where there has been defective work under a building type contract;
  • give due consideration to a loss of chance claim in appropriate circumstances;
  • look at options, if you a defendant, for limiting the amount of the claim by carefully considering causation, mitigation, remoteness, contributory negligence, proportionate liability and other ways for discounting an award

* This content does not purport to give legal advice. Readers must obtain their own legal advice, that applies to the particular circumstances of their case, before taking any action at all.