In our earlier article, we looked at the different bases on which a court can assess damages. A defendant will not be held accountable for every loss a plaintiff suffers which is in someway related to the defendant’s breach of the contract. There are a number of factors the court will consider which may limit an award of damages made against a defendant.
Essentially, a defendant’s breach of contract must have caused the plaintiff’s loss or damage. It is up to the plaintiff to prove that they would not have suffered the loss or damage but for the defendant’s breach. In effect, this is a matter of ordinary common sense and experience.
Circumstances can arise where multiple factors contribute to the loss or damage the plaintiff suffers. Generally speaking, it will be sufficient if one of those factors is the defendant’s breach. Like life, however, breaches of contract are complicated. If an external event intervenes in such a way as to break the chain of causation, the plaintiff will only be entitled to nominal damages. The court needs to look at the factual circumstances of each case to determine the causal link between the defendant’s breach and the plaintiff’s loss or damage.
A plaintiff’s loss or damage, even if caused by the defendant’s breach of contract, must not be considered too remote. This has become known as the test in Hadley v Baxendale. A plaintiff’s loss or damage must have either:
- Arisen naturally, according to the usual course of things; or
- Been in the contemplation of both parties at the time they made the contract.
Whether a plaintiff’s loss or damage is considered to be too remote is to be decided on the facts of each case. As circumstances surrounding breaches of contract are generally factually unique, previous cases can only assist to a limited degree.
Mitigation of Loss
Mitigation of loss refers to the steps the plaintiff took, or ought to have taken, to minimise their loss or damage. It is up to the defendant to prove that a plaintiff should have mitigated their loss. For example, Party A contracts to supply Party B with goods and Party B breaches that contract by refusing to pay for the goods. Party A may mitigate their loss in circumstances where Party C indicates that they wish to buy the goods. If Party A can sell the goods to Party C, Party A will not have suffered any loss.
A plaintiff does not owe a duty to the defendant to mitigate their loss. Rather, a plaintiff must not act unreasonably. Once again, whether a plaintiff has acted reasonably or not, is determined on the facts of each case.
When are Damages Assessed?
Damages are most frequently assessed at the time when the breach occurs. Although this is the general rule, a court will not apply the rule if doing so will cause an injustice. In those circumstances, a Court can fix any date it deems appropriate.
Factors that can limit an award of damages for breach of contract are complicated. Any party to a contract which has been breached should seek independent legal advice. If you have any questions, get in touch with out disputes team on 1300 544 755.