Damages in Contract Law — Aims, Measures and Limits

Damages in contract law are the primary remedy for breach: a money award designed to compensate the innocent party for the loss caused by the breach. The guiding principle is compensatory, not punitive. This guide explains the aim of contract damages, the measures the courts use, and the limits that cut an award down — mitigation, remoteness and causation — with links to the leading briefs.

The compensatory principle. The classic statement is Robinson v Harman (1848): where a party sustains loss by breach of contract, they are, so far as money can do it, to be placed in the same situation as if the contract had been performed. This protects the claimant’s expectation interest — the position they expected to be in had the contract been carried out.

Expectation vs reliance measure. The default is the expectation measure (the value of the promised performance). Where expectation loss is too speculative to prove, the claimant may instead recover their reliance loss — wasted expenditure incurred in reliance on the contract — Anglia Television v Reed (1972) (pre-contract production costs wasted when an actor pulled out). A claimant cannot, however, use the reliance measure to escape a bad bargain.

Cost of cure vs diminution in value. Where defective performance must be remedied, the court chooses between the cost of putting it right and the difference in value. In Ruxley Electronics v Forsyth (1996) a swimming pool was built slightly too shallow; the House of Lords refused the disproportionate cost of rebuilding and awarded a modest sum for “loss of amenity” instead. The lesson is that the award must be reasonable and not confer a windfall.

Loss of a chance. Where the breach deprives the claimant of the opportunity to gain a benefit dependent on a third party’s action, damages can be assessed for the lost chance itself — Chaplin v Hicks (1911) (a contestant wrongly excluded from the final stage of a competition recovered for her lost chance of winning, even though success was not certain).

Non-pecuniary loss. The general rule is that damages are not recoverable for mere disappointment or injured feelings — Addis v Gramophone Co Ltd (1909). There is an exception where an important object of the contract was to provide pleasure, relaxation or peace of mind — Jarvis v Swans Tours (1973) (a ruined holiday) — extended in Farley v Skinner (2001) to a contract a major or important object of which was peace of mind (a surveyor instructed to check for aircraft noise). Distress damages for physical inconvenience caused by breach are also recoverable — Watts v Morrow (1991).

Mitigation. The claimant cannot recover for loss they could reasonably have avoided. The duty to mitigate is not onerous — the claimant need only act reasonably — but unreasonable failure to take available steps (for example, to accept a reasonable substitute) reduces the award. Any benefit actually obtained by mitigating is brought into account.

Remoteness and causation. Even a loss within the right measure is recoverable only if it is not too remote. The contract test is the rule in Hadley v Baxendale (1854) — see our dedicated remoteness of damage guide. The breach must also have caused the loss as a matter of fact and law.

Account of profits — the exception. Very exceptionally, the court may strip a defendant of profits made from breach rather than compensate the claimant’s loss — Attorney General v Blake (2001) (a former spy who breached a lifelong confidentiality undertaking). This is a rare, restitutionary remedy reserved for cases where ordinary damages are inadequate and the claimant has a legitimate interest in preventing the defendant’s profit.

How to use this in an exam. Start with the compensatory aim (Robinson v Harman), choose the measure (expectation, then reliance if expectation is unprovable), apply cost of cure / diminution where relevant, then run the limits in order: causation, remoteness, mitigation. Flag non-pecuniary loss only where the contract’s object engages Jarvis/Farley. Damages quantification is a recurring theme in our contract past papers. Read this with our remoteness guide, frustration of contract guide and consideration guide, and explore the Contract Law topic hub and 50 must-know contract cases. Drill with our contract flashcards and test application on our past papers.