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If you suffer a loss resulting from a breach of contract, you may be awarded damages to compensate you for that loss. This means that a court orders the party who has breached the contract to compensate you, the innocent party, for losses caused by their breach. The purpose of damages is to return you to the position you would have been in if the other party had properly performed the contract. This article will outline the types of damages you may receive if another party breaches their contract with you. 

What Is Required to Claim Damages?

To claim damages, you must show that your loss is reasonably linked to the breach of contract. When considering whether there is a reasonable link between your loss and the other party’s breach, the court will consider whether the other party knew, when entering into the contract, that their breach was reasonably likely to result in such a loss. 

In addition to this, 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 contract will state how much damages are for a breach of a contract. These are called ‘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 loss was caused by the breach. 

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 real 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. Sometimes, a contract will state a very large amount as a threat to make sure the other party performs their contract. Such an amount is called a ‘penalty’. If this is the case, the court will look at the actual value of the loss instead of what the contract states. Generally, if a number of ways to breach the contract are possible but only one sum is provided for ‘breach of contract’, the court will treat this amount as a penalty and will not enforce it. 

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’ because 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, but 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 percent chance of profit. 

Damages for Reliance Loss

Damages can be awarded where you have relied on the other party fulfilling their contractual terms at some expense. This means that you may be able to receive damages for wasted expenditure caused by the breach of the contract. This is known as ‘reliance loss’. 

For example, if a company builds a structure to accommodate an event and the event organisers then cancel the event, 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 go about its own examination of 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. 

Even if your contract contains a damages clause, the court will not uphold it if the damages are not a genuine pre-estimate of the loss you have suffered from the breach of contract. If you have questions about damages for breach of contract, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page. 

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