What Remedies Are Available for a Breach of Contract?

Summary

• Damages are the most common remedy for breach of contract, designed to restore the innocent party to the position they would have been in had the breach not occurred.
• Liquidated damages clauses must reflect a genuine pre-estimate of loss, or a court may void them as a penalty.
• Specific performance is available in limited circumstances and requires a binding contract and an actual or anticipated breach.
• This article is a plain-English guide to breach of contract remedies under Australian law, written for business owners.
• It has been prepared by LegalVision, a commercial law firm that specialises in advising clients on contract disputes and breach of contract matters.

Tips for Businesses
Document losses immediately after a breach and take reasonable steps to mitigate them. Review any liquidated damages clauses to confirm they reflect a genuine loss estimate. Where a monetary award is insufficient, consider whether specific performance is available. Seek legal advice before deciding which remedy to pursue.

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On this page

• Damages 
• Mitigation of Loss
• Specific Performance
• Key Takeaways
• Frequently Asked Questions

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.

Damages 

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 against whom they bring the case.

There are a number of different types of damages available under Australian law.

Compensatory Damages

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. 

Nominal Damages

Courts award nominal damages if they determine that the defendant 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. 

Expectation Damages

Courts award expectation damages to the harmed party for the loss of what they reasonably could have anticipated if the defendant fulfilled the contract.

These damages (like compensatory damages) place the harmed party in the position they would have been in had the breach not occurred. 

Liquidated Damages

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; the court will deem it invalid. 

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Mitigation of Loss

When a contract is breached, the innocent party cannot simply sit back and let their losses grow. Australian law requires the innocent party to take reasonable steps to reduce their loss. This is called the duty to mitigate.

For example, if a supplier fails to deliver goods, the buyer should try to source those goods elsewhere at a reasonable price. If the buyer does nothing and their losses increase, the court may reduce the damages awarded.

The defendant carries the burden of proving that the plaintiff failed to mitigate. However, the plaintiff only needs to take reasonable steps, not every possible step. Courts will not penalise a plaintiff for failing to take steps that were unreasonable or impractical in the circumstances.

Mitigation is relevant to compensatory, expectation, and liquidated damages claims. Understanding this obligation early can help businesses protect their position before a dispute reaches court.

Specific Performance

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. 

Key Takeaways

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.

LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced dispute resolution lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.

Frequently Asked Questions