Remedies for Breach of Contract
Damages — General Principles
Purpose: to put the innocent party in the position they would have been in had the contract been performed (expectation/loss of bargain measure): Robinson v Harman (1848).
Remoteness
- Loss is recoverable only if it was within the reasonable contemplation of the parties at the time of contracting as a not unlikely consequence of the breach.
- First limb: loss arising naturally from the breach (Hadley v Baxendale (1854)).
- Second limb: loss arising from special circumstances communicated to the defendant at the time of contracting (Hadley v Baxendale).
- Refined in Victoria Laundry v Newman Industries [1949]: actual knowledge of special circumstances required for second-limb loss.
Mitigation
- The innocent party must take reasonable steps to mitigate loss. They cannot recover avoidable loss: Payzu v Saunders [1919].
- No duty to take unreasonable steps.
Quantification
- Expectation loss: value of the promised performance.
- Reliance loss: expenditure wasted in reliance on the contract (alternative where expectation loss is hard to prove): Anglia Television v Reed [1972].
- Loss of chance: recoverable where the chance lost had a real or substantial prospect of materialising: Chaplin v Hicks [1911].
Agreed Damages Clauses
- A liquidated damages clause is enforceable if it is a genuine pre-estimate of loss.
- A penalty clause is void/unenforceable. Test: whether the clause is a secondary obligation that imposes a detriment out of all proportion to the legitimate interest of the innocent party in performance: Cavendish Square Holding v Makdessi [2015] (Supreme Court, replacing the older penalty test).
Equitable Remedies
Specific Performance
- Discretionary order to perform the contract. Available where damages are inadequate: typically contracts for unique goods or land.
- Not awarded for personal service contracts or where constant court supervision would be required.
Injunction
- May be granted to restrain breach of a negative contractual obligation.
- Follows the American Cyanamid [1975] principles at interim stage: serious issue, balance of convenience, adequacy of damages.
Common SQE Traps
- Confusing penalty clauses (unenforceable) with liquidated damages (enforceable) — always apply the Cavendish test.
- Assuming the claimant can recover all loss without checking remoteness and mitigation.
- Thinking specific performance is available for personal service contracts — it is not.
Exam tip: In a remedies question, always address: (1) which measure of loss; (2) remoteness (Hadley); (3) mitigation; (4) whether any agreed damages clause applies (Cavendish).