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As a business owner, you may be well aware that relationships with business partners do not always work out. If a business partner does not perform their part of an agreement, it can damage your products, sales and future plans. Fortunately, however, you may be able to recover damages for breach of contract if this happens. This article discusses:

  • how damages work; and
  • how much money you may be able to recover for a breach of contract.

What Are Damages?

If someone breaches a contract and you suffer losses as a result, a court can award you damages as compensation. The purpose of damages is to place you in the position you would have been in if your business partner had not breached the contract. This means that you must show that the breach of the contract resulted in some compensable loss. 

For example, if you sell sports footwear, you will likely have a contract with a footwear supplier. You will rely on your supplier delivering your stock in a timely manner. If the supplier fails to do so, this may be a breach of contract. However, in order to recover damages, you will need to show that the late delivery caused you loss. This loss would likely be a drop in sales.

Can I Get My Money Back?

To calculate damages for breach of contract, you should consider what would have happened if your business partner had performed the contract as planned. Consider what it would cost to put yourself into the situation you would have been in if the agreement had gone to plan.

For example, if a dry cleaner badly damages your shirts, you would be entitled to a refund of the fee. You would also be entitled to the cost of loss incurred. In this case, the loss would be the cost of replacing the shirts.

Can I Get More Than My Money Back?

In the example above, you may be able to get a refund plus the cost of replacing the shirts. This would mean that you get more than the cost of the dry cleaning back. However, damages cannot place you in a better position than you would have been in if the contract had been performed. This means that you could not claim more than the shirts were worth as damages.

Can I Get Damages for Relying on the Contract?

A court can award ‘expectation damages’ if you expected the contract to be performed in a certain way and suffered a loss because of that expectation. 

For example, if a contractor relies on a contract with a subcontractor and incurs cost in preparation for the subcontractor to perform the contract (e.g. by making supply orders or storing equipment) the contractor may receive expectation damages.  

Can I Receive Damages Worth More Than My Loss?

In exceptional circumstances, a court may decide to do more than compensate you. If this happens, the court will award you ‘exemplary damages’. Exemplary damages are used to deter others from repeating your business partner’s behavior. For example, a court could award these damages for a violation of privacy. Exemplary damages are rare, however. You should not expect to receive damages worth more than your actual loss in a standard breach of contract case.

What if There Was No Loss?  

If a business partner breaches your contract but you cannot show that you suffered any losses as a result, a court may still award you ‘nominal damages’. However, an award of nominal damages is usually a token sum, such as $1, as there has been no major loss. As a breach of contract must be quite serious in order for a court to award damages, nominal damages are rarely required. 

Key Takeaways 

If a business partner has breached your contract, you may be able to recover damages. To do so, you will need to show a clear link between the breach of contract and a loss. Damages do not allow you to profit from a breach. Therefore, you should consider whether the loss is significant enough for damages to be worth pursuing. If you need help working out what damages you might be able to claim for a 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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