The two key types of remedies generally available for breach of contract are damages and specific performance. The most common remedy is damages, where the court determines the damage that the breach of contract caused, and directs the party who breached the contract to pay a sum of money. In some circumstances, the court will make an order for specific performance. Here, the defaulting party must complete its obligation under the contract. This article explains how the remedies of damages and specific performance work in practice.
When a court case comes to an end, if a judge finds in favour of the plaintiff, they may order the defendant to pay damages. The plaintiff is the person who brings a court case, while the defendant is the person who they bring the case against.
There are a number of different types of damages available under Australian law.
These are the most common damages that courts award upon the breach of a contract.
Damages for breach of contract may be compensatory in nature. That is, they are not awarded to punish the defendant, but rather to compensate the plaintiff for their loss suffered. In legal terms, the aim is to place the plaintiff in the same situation, as far as money can do so, as if the defendant had performed the contract.
The party claiming damages must prove they suffered loss or damage as a result of the breach. An award of damages cannot place the plaintiff in a better position than they would have been in had the defendant performed the contract. The court can assess damages on several grounds.
Courts award nominal damages if they determine that the defendent breached the contract, but did not cause any real damage. If the plaintiff can prove that the defendant did breach the contract, but is unable to establish any particular loss or damage, a court may order nominal damages.
The award of damages is likely to be very low, hence the term ‘nominal damages’. The purpose of an award of nominal damage is to acknowledge that one party has infringed upon the legal rights of the other. But, given that damages are to be compensatory (not a punishment or penalty) the amount the defendant must pay will only be small.
Courts award expectation damages to the harmed party for the loss of what they reasonably could have anticipated if the defendent fulfilled the contract.
These damages (like compensatory damages) places the harmed party in the position they would have been in had the breach not occurred.
These are damages that are pre-agreed between the parties to a contract. This means the amount of damages owed if there is a breach is set out in the contract.
Upon the alleged breach of contract, the court will need to establish that there was a breach. The court will not need to work out the amount of damages that should be awarded. It is important that the liquidated damages clause cannot be deemed a ‘penalty’ damage, otherwise the court will deem it invalid.
In certain circumstances, the courts will order specific performance. This means that the court will enforce the terms of a contract, even after its breach. Before the court makes an order for specific performance, a party must establish that:
- there is a binding contract on foot; and
- the other party has breached the terms of the contract.
The breach of contract must be either actual or anticipated. An actual breach, as the term suggests, will have occurred when one party has actually refused to perform its obligations under the contract. An anticipatory breach, on the other hand, occurs where one party threatens to refuse to perform their obligations under the contract. An idle threat will not be sufficient. The threat must pose a real possibility that a party will breach the contract.
There are certain circumstances where the court will not make an order for specific performance. They are where:
- damages are sufficient;
- it would compel the defendant to maintain a relationship with the plaintiff (employment, business, etc);
- the contract came about by mistake;
- a party’s obligations are ambiguous;
- specific performance would result in unconscionable hardship to the defendant;
- the plaintiff is not ready or willing to perform the obligations; or
- the obligations of the defendant are impossible to perform.
If a court makes an order for specific performance and the other party does not comply, they can be found guilty of contempt of court and can be fined, or in some cases, sent to prison.
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The most common remedy for breach of contract is damages, with the most common form being compensatory. These damages are designed to put the plaintiff in the same position had the breach not occurred. Other forms of damages, including nominal, expectation and liquidated, are also available. Liquidated damages are the most commonly sought out of these three. In limited circumstances, the court will make an order for specific performance. Here, the party who has breached the contract will have to perform its obligations under the contract. Generally, if you can establish that the contract has been breached, you need to be clear on what you want from the other party. Specific performance will not always be an appropriate or possible remedy.
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