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If you suffer a loss resulting from a breach of contract, you may be awarded damages as compensation. In this case, a court orders the party who has breached the contract to compensate you – the innocent party – for the losses their breach caused. Ultimately, the purpose of damages is to return you to the position you would have been in if the other party had adequately performed the contract. This article will outline the damages you may receive if another party breaches their contract with you.
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What Are Damages?
If a judge finds in favour of the plaintiff at the end of a court case, they may order the defendant to pay damages. Damages are an award of money made to compensate the plaintiff who has suffered loss or damage due to the defendant’s breach of the contract.
Types of Damages
There are several different types of monetary damages available under Australian law.
| Type of Damages | Explanation |
| Compensatory Damages | The most common type of damages the court will award. The aim is to place the plaintiff in the same financial position as if the defendant had not breached the contract. |
| Nominal Damages | Courts award nominal damages, being a minor or token amount such as $1, if they determine that the defendant breached the contract but did not cause any actual loss or damage. |
| Expectation Damages | Courts award these damages for the loss that a harmed party reasonably could have anticipated if the defendant fulfilled the contract. |
| Liquidated Damages | These are damages that the parties agree upon when drafting the contract. Therefore, the amount owed if a breach occurs is set out. |
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What is Required to Claim Damages?
To claim damages, you must prove a reasonable link between your loss and the breach of contract. When considering whether a reasonable link exists, the court will consider if the other party knew, when entering into the contract, that their breach was reasonably likely to result in such a loss.
In addition, you are responsible for keeping your loss to a minimum. This means that you must not do anything to make the loss worse.
How Much Are Damages?
In some instances, your original contract will outline how much damages are for a breach of a contract. These are ‘agreed damages’ or ‘liquidated damages’ clauses. In other cases, however, the amount of damages is up to the court to decide. As the party claiming damages, you must show the court:
- the amount of your loss; and
- that the breach caused your loss.
Sometimes, the parties to a contract may agree in advance to an amount of damages that either party must pay if they breach the contract. This agreed amount must be a genuine estimate of the likely loss caused by the breach. In this case, either side must pay the agreed amount even if the breaching party can show that the loss was less than the amount set out in the clause.
When Will a Court Not Enforce Damages for Breach of Contract?
The court will not enforce or uphold a damages clause if the amount it states is not a genuine estimate of the value of the loss. For example, a contract may threaten a large amount to make sure the other party performs their contract. Such a clause is called a ‘penalty’. In this case, the court will look at the actual value of the loss instead of what the contract states.
Damages for Expectation Losses
If the contract does not set out damages, the court will award damages for breach of contract on the principle that the innocent party should be returned to the position they would have been in had the breach not occurred. This is known as ‘damages for expectation loss’. In this case, you suffered the loss due to the other party’s failure to fulfil the expectation.
Damages for Loss of Chance or Opportunity
A court can also award damages for a lost chance or opportunity to profit or gain. For example, a party might seek damages for the profits they could have expected to receive if the other party had performed their obligations under the contract. As the innocent party, you will need to prove the existence of the chance or opportunity. You may be able to receive damages for the chance of a profit that is less than likely. However, the court will take this probability into account when it assesses the damages.
For example, a chance of a profit that is ‘less than likely’ could be a chance with less than a fifty per cent chance of profit.
Damages for Reliance Loss
The court may also award damages where you rely on the other party fulfilling their contractual terms at some expense. Therefore, you may receive damages for wasted expenditure caused by the breach of the contract. This is a ‘reliance loss’.
For example, suppose a company builds a structure to accommodate an event and the event organisers cancel. In that case, the company could seek damages equivalent to the amount of money they spent on building the structure.
Key Takeaways
When assessing damages, you should first check whether your contract sets out the damages that either side must pay if they breach the contract. If it does not, the court will need to examine the facts and circumstances of the breach to allocate damages. The court may award damages for:
- loss of expectation;
- loss of chance or opportunity, or
- wasted opportunity.
It will be helpful to remember even if your contract contains a damages clause, the court will only uphold it if the damages are a genuine pre-estimate of the loss you have suffered from the breach of contract by the offending party.
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Frequently Asked Questions
To claim damages, you must prove a reasonable link between your loss and the breach of contract. When considering whether a reasonable link exists, the court will consider if the other party knew, when entering into the contract, that their breach was reasonably likely to result in such a loss.
Damages are an award of money made to compensate the plaintiff who has suffered loss or damage due to the defendant’s breach of the contract.
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