Damages for breach of contract - how to calculate and claim losses

Whether you're a business owner, contractor, or individual with a breach of contract claim, assessing the likely damages can be as important as assessing the strength of your legal case on liability.

Many claimants enter breach of contract disputes with unrealistic and overestimated expectations about damages, often leading to disappointment and increased litigation risk. The quantum (amount) of damages is often as heavily contested as liability.

How English courts assess damages

When calculating compensation for breach of contract, courts follow a fundamental principle to seek to put the innocent party in the same financial position he/she/they would have been in had the contract been properly performed.

What losses can you can (and cannot) claim?

The starting point for recoverable damages is direct financial losses resulting from the breach. For example, if a supplier fails to deliver materials, causing your production to stop, you can claim the direct cost of finding alternative materials and any lost production time.

Damages that are not generally recoverable include pure compensation for stress or inconvenience and injury to feelings.

Some types of contract damages may or may not be recoverable (the starting point with these is that they are not generally recoverable), including :-

• Indirect or consequential losses

• Loss of profit

• Loss of business opportunity

• Loss of goodwill

Many breach of contract claims falter in establishing the crucial link between the breach of contract and the claimed losses.

For damages to be recoverable, the 2 essential contract law tests are :-

• Direct causation - you must prove that your losses wouldn't have occurred "but for" the breach.

• Reasonable foreseeability - the types of claimed losses must have been reasonably predictable at the time the contract was made.

Mitigation of loss

Damages will be reduced where a claimant fails to mitigate loss i.e take reasonable steps to minimise losses after a breach. There is a duty on claimants to mitigate loss which means :-

• acting promptly to reduce potential losses.

• acting in a reasonable and proportionate way.

Failure to mitigate can reduce your recoverable damages.

Proving contractual loss

When claiming compensation, the burden of proving recoverable losses falls entirely on the claimant. Courts require supporting evidence for each element of loss claimed.

Some types of damages claims follow different rules from standard contractual principles described above, including :-

• Warranty claims - warranty damages follow distinct rules from standard breach claims including a focus on difference in value rather than cost of cure, damages calculated at time of breach, not when defect discovered

• Consumer contract damages - Consumer protection legislation creates special rules for damages, often including additional statutory remedies and a more flexible approach to remoteness

• Restitutionary damages - available in exceptional cases where the standard compensatory approach is inadequate. More common in intellectual property damages claims.

How our lawyers can help

Given the complexity of contract damages, seeking legal advice before pursuing a claim is often crucial. We assist clients to :-

• Evaluate the viability of your claim.

• Help quantify realistic recoverable damages.

• Get a strategy in place including analysing strengths and weaknesses and out of court settlement opportunities.

• Advise on evidence gathering and preparation.