Damages for breach of contract - how it works

When a contract is breached, understanding how damages work under English law is essential. Whether you're a business owner, contractor, or individual with a breach of contract claim, assessing the likely damages can be as important in deciding whether to sue as being confident about the underlying chances of winning on legal liability.

Many claimants enter breach of contract disputes with unrealistic and overestimated expectations about damages, often leading to disappointment and increased litigation risk. What many claimants don't realise is that the quantum (amount) of damages is often as heavily contested as liability itself.

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 claims 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 not on proving the breach itself, but on establishing the crucial link between the breach and the claimed losses. These concepts are known legally as causation and foreseeability of losses. Even when claimants can on the face of it show substantial losses, they frequently struggle to demonstrate that these losses were both caused by the breach and reasonably foreseeable at the time of contracting.

For damages to be recoverable, they must pass 2 essential contract law tests :-

• 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 detailed evidence of each element of loss.

Some types of damages claims follow different rules from standard contractual principles :-

• 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 seen 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.