Damages: Are There Any Limitations On What You Can Claim?

If you have suffered a loss from a breach of contract, you may be entitled to damages. Damages is the money a plaintiff is awarded after it is proven a loss stems from a contract breach. Find out everything you need to know about the factors which may potentially limit the damages you claim after a breach of contract.. However, damages cannot put you in a better position than you would be if the contract is performed. This article will explain the factors that limit a plaintiff’s ability to obtain damages, discussing causation, remoteness and mitigation. It is important to note that these three factors are not independent from each other but work in conjunction to ensure that reasonable compensation is provided to victims of a breach of contract. Next, it will explain the limitations on claiming non-pecuniary loss. Finally it will discuss your legal options after a breach.

Causation 

In order to recover damages for a breach of contract, a plaintiff must show that there is a causal connection between the breach and the loss they have suffered. This is determined through a “but for” test and using common sense. The “but for” test is a legal test which asks, “but for the action of the breaching party would the plaintiff have suffered the loss they are seeing compensation for?” Last, it is sufficient to argue a breach contributed to the loss, if there are multiple causes of loss.

Remoteness

Remoteness relates to the likelihood of the loss suffered from the breach of contract. The general rule is that a loss is too remote if it could not have been reasonably contemplated by the breaching party when they entered the contract. The breaching party must have contemplated the consequences of breach. This means that it must be proven they had actual knowledge of the risk and accepted it at the time of contract formation. For example, if a breach of contract prevented you from getting a lucrative contract – that may not be foreseeable to the other party at the time of contract formation. The parties to a contract should have thought about the general nature of the loss and how it would occur. If your loss is particularly big, but the benefit from the original contract is small – it may impact your chances of proving reasonable contemplation. 

Mitigation 

The general rule for mitigation is that you cannot claim consequential loss if it should have been reasonably avoided. This means that you must take all reasonable steps to mitigate the loss. It also means you cannot recover damages for a loss which could have been avoided. This does not mean that you need to do every possible thing, just what is reasonable. 

If you do take reasonable steps then you can recover for any losses you incurred in taking those steps. Even if it was not the most efficient action, as long as it is reasonable you are still able to recover. However, the breaching party is able to benefit from any mitigation on your part. You can only recover for the loss after taking into account any mitigation. Critically, if you do not have the ability to take mitigatory action then this will not be a bar to recovery. 

Disappointment and Distress 

It is hard to recover damages for non-pecuniary loss stemming from a breach. Non-pecuniary losses are not economic losses, but losses that impact your quality of life. Examples include diminished quality of life, emotional trauma or pain and suffering. However, you may be able to recover damages for this if:

  • an important goal of the contract is that you are satisfied and should not suffer distress; or
  • if you have suffered physical inconvenience because of the breach; or 
  • if you suffer pain, suffering or loss because of personal injury caused by the breach

These categories are not mutually exclusive, and often can overlap. Claiming under one category does not preclude you from claiming under another. 

What Are My Legal Options?

Understanding the limitations on damages can be tricky. It is a complex area of law that can have a big impact on you. Getting the most out of recovering damages is essential for a business trying to regroup from a breach of contract. To best wrap your head around this area of law and how it might impact your claim to damages, we recommend that you get advice from a contract lawyer.

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