Introduction
In an earlier blog article, we spoke about the use of liquidated damages (LD) clauses in contracts to prevent loss due to a breach of contract. This article will be looking at the other option available for losses due to a breach of contract known as unliquidated (general) damages. Unlike LD clauses, unliquidated damages (UD) are for a party’s breach that have not been pre-estimated.
Compensation Principle
When awarding UD, the court follows a specific set of rules outlined in this article. The rule is the compensation principle which compensates in order to put the aggrieved party in the same position it would be in as if no breach had ever occurred. 3 ways it is determined:
1. Expectation damages
Courts attempt to include the benefit the aggrieved party expected to receive at the completion of the contract.
- Important to Note – the party is entitled to receive exactly what was stipulated (not just the same financial value). Awarded not just the difference in value of the performance but the cost associated with restoring it to its expected situation.
2. Reliance damages
When the expected damages are impossible to asses, court will assess damages according to costs incurred by the aggrieved party.
3. Loss of chance
Compensation for value of the ‘chance’ or opportunity.
- Even if the chance was dependent on other conditions & hard to assess.
The most favoured method that courts and judges use is expectation damages. Date of breach is used to assess damages.
Limitations on Damages
There can be some limitations on damages as a result of some circumstances in contract. It would be best practice to check these clauses with one of LawPath’s directory contract lawyers. Those limitations are:
- Causation – damages only caused by the breach.
- Remoteness of damage – recover damages to only those which are reasonably foreseeable to the parties.
- Mitigation – principle requires a plaintiff to attempt to limit their own losses resulting from breach of another party.
- Non pecuniary losses – include anxiety, distress, disappointment, loss of reputation & others. Generally not compensated under UD.
- Contributory negligence – plaintiff’s carelessness has also contributed to the loss suffered. Courts in Australia may reduce the awarded damages in such instances.
- Termination under an express term – if a party terminates the contract under a termination clause it can’t then attempt to recover future monies in breach of contract.
Conclusion
Often UD cases involve allegations of negligent actions/omissions or misleading and deceptive conduct. The UD can be different depending on the circumstances. It is important to consider all aspects of a dispute to wholly calculate the maximum amount of damages claimable. A commercial lawyer will be able to assist you in understanding the full ramifications and consequences of an agreement.
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