Establishing a contract has been breached is often the easy part in pursuing the other contracting party. Quantifying damages, however, is a delicate exercise and must be properly done before any demand is issued. The general rule for damages for breach of contract is as set out in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 116 Deane J, which provides:
The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant’s wrongful conduct.
Put simply, the award of damages should put the ‘wronged’ party in the position they would have been in had the breach of contract not occurred, and the contract had been performed.
Awarding of damages in contract matters is largely a pragmatic exercise and is not subject to hard and fast rules, but the Courts have deemed there must be a rational foundation for a proper assessment of damages.
Guidelines in Assessing Damages
Some guidelines for undertaking the assessment of damages process as a result of a breach of contract are as follows:
- Ask yourself, where would I have been if the contract had been performed vs where am I now? The difference between those two positions is a good starting point;
- Are there any ancillary or consequential damages? For example, did this breach cause you to lose other contracts or opportunities, and what is the financial consequence of such loss?
- Have I mitigated my loss? – generally, parties are seen as having a positive duty to ‘mitigate’ or reduce their loss, by taking active steps to, for example, secure an alternate contract to finish the task. Simply sitting on one’s hands and allowing damages to accumulate will not bode well in Court, and will likely see a reduction in the final award. Set out clearly what you have done to reduce loss, and the financial consequences of such actions.
- Is the loss claimed too remote? – it might be well and good to say you would have applied the contract monies, had they been paid, to investing in Google or Apple, but such damage may be deemed too remote to be considered in the assessment or quantification. Here, the authority of Hadley v Blaxendale provides that for loss to be awarded, it must be loss which:
- naturally arises from the breach according to the usual course of things; or
- is within the reasonable contemplation of the parties at the time of contracting as the probable result of a breach.
While your contract lawyer will be able to assist in the quantification, having answers to these questions (and evidence to back up those answers) will be a useful starting point. LegalVision has a team of great contract lawyers who can assist you. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.