Breach of Contract and Damages

What is a Breach of Contract

A failure to perform a contract in accordance with the terms of the contract is a breach of contract, which will entitle the other party to the contract to an appropriate remedy.

A breach of contract is one of the four principal ways in which a contract can be discharged the others being discharge by performance, by agreement and by operation of law.

Consequences of Breach of Contract

There are three principal consequences of a breach of contract :-

1. The innocent part is entitled to recover damages in respect of the loss which he/she has suffered as a result of the breach
2. The party in breach may be unable to sue to enforce the innocent party's obligation under the contract
3. The breach may entitle the innocent party to terminate further performance of the contract

Every breach of a valid and enforceable contract gives to the innocent party a right to recover damages in respect of the loss suffered as a result of the breach. An action for damages lies whether the term which is broken is a condition, a warranty or an innonimate term.

Therefor the first step is in determining whether it was a term. The courts have adopted an an objective approach and several criteria have been adopted according to Heilbut, Symons & Co v Buckleton :-
verificiation, importance, special knowledge and time statement was made.

Verification

A statement is unlikely to be a term of the contract if the maker of the statement asks the other party to verify its truth : Ecay v Godfrey.

Importance

The more important the matter, the greater the likelihood that the parties intended it to be a term.

Special Knowledge

If the person making the statement has some special knowledge or skill compared to the other party, the statement may be held to be a term : Oscar Chess Ltd v Williams.

Time Statement Was Made

If a statement was made near or at a time the contract was made, it is more likely to be a term : Routledge v McKay.

The next step would be to determine whether the term was a condition, warranty or inonimate term.

A term classified as a condition would enable the injured party to either terminate the performance of the contract and claim for damages or perform the contract despite the breach and recover damages instead : Poussard v Spiers. The exercise of the right to terminate the performance of the contract discharges the primary obligations of both parties for the future and imposes on the party in breach, by way of substitution, an anticipatory secondary obligation to pay damages to the innocent party.

A breach of warranty will only give the injured party the right to claim damages, the performance of the contract cannot be terminated : Bettini v Gye. This is in actual fact the secondary obligation to pay damages a s a result of the breach created.

A breach of an inonimate term could result in one of two things depending on the consequences of a breach. If a breach of the term results in severe loss and damage, the injured party will be entitled to terminate the performance of the contract and parties will treat themselves as being discharged from the contract (prospective only). If the breach involves minor loss, the injured party’s remedies will be restricted to damages.

The aim of an award for damages is to compensate the claimant for the loss which he has suffered as a result of the defendant's breach of contract.

A claimant could claim compensation on a number of grounds which will be determined by the amount of damages which a claimant can recover by way of compensation:-

1. Expectation interest - to put the claimant in the position which he/she would have been in had the contract been performed according to the terms.
2. Reliance interest - to put the claimant in the position he/she would have been in had he/she not entered into the contract.
3. Restitution interest - restore the benefit to the claimant which he/she had conferred upon the seller however the claimaint must establish that the defendant was enriched, that the enrichment was at the claimant's expense and that it was unjust that the defendant retain the benefit without recompensing the claimant.

The courts have come up with a number of doctrines that need to be fulfilled in order for the claimant to claim by way of expectation interest :-

Mitigation

A claimant is under a duty to take all reasonable steps to mitigate his loss ad the claimant must not unreasonable incur expense subsequent to the breach of contract.

Remoteness

A claimant's expectation interest will not be fully protected where some of the loss which he has suffered is too remote a consequence of the defendant's breach of contract - losses that occur naturally or as a result of the usual course of things or were within the reasonable contemplation of both parties ad the time the contract was made.

Causation

A claimant can only recover damages in respect of the losses if there is a casual link between the loss and defendant's breach of contract.

Quantifying the Damage

It was established in Johnson v Agnew that damages are to be assessed as at the date of breach. But, where the claimant is unaware of the breach, damages will generally be assessed as at the date of on which the claimant, could with reasonable diligence, have discovered the breach.

Damages are generally assessed by reference to the market value of the promised contractual performance; that it to say, the claimant's loss is objetviely assessed. It has however also been recognised in Ruxley Electronics and Construction Ltd v Forsyth that the defendant was entitled to loss of amenity damages and the concept of 'consumer surplus' - claimant's subjective valuation of the contractual performance, which may be considered more than the market value - be considered.