What Happens When A Contract is Breached?
Have you recently breached a contract or been aggrieved by a breach? Find out here what legal remedies are available to deal with a breach of contract.
Contracts oblige parties to complete actions called performances. If a party fails to comply with their obligations within the contract (whether it be their performance or their performance in a timely manner) they have breached the contract. The other party (the plaintiff) may choose to seek a remedy from the breaching party (the defendant) for this breach. Remedies can be awarded for a specific loss, or for an infringement of the plaintiff’s rights. Plaintiffs can seek a number of remedies:
- through common law: damages, or
- through equity: specific performance or an injunction.
The money awarded to the plaintiff for a loss suffered, or as punishment for breach of contract is a called damages. Damages don’t place the plaintiff in a better position than they would be if there is completion of contractual performance. Damages can be either liquidated or unliquidated.
Liquidated or Unliquidated?
Liquidated damages are awarded where there is a particular amount specified in the contract. The plaintiff can claim liquidated damages if there is a damages clause in the contract, estimating a particular amount the parties have agreed on for a breach, during contract formation. Advantages of having a liquidated damages clause in your contract are that the dispute resolution process is simplified, and the plaintiff doesn’t have to prove their loss.
In contrast, unliquidated damages are awarded when no amount is specified by a damages clause. The court determines the amount awarded based on the loss and severity of the breach. Where a plaintiff doesn’t seek compensation for a specific loss, they can seek nominal damages. The advantages of collecting unliquidated damages is that you can recover losses that were unforeseeable before the breach.
To check whether your contract covers you for liquidated or unliquidated damages, contact a contract lawyer.
When a plaintiff seeks damages but can’t point to a specific loss, they may be awarded nominal damages. Receiving nominal damages requires the plaintiff to prove that the defendant breached their contract, but does not require proof of a loss.
Calculation of Loss Suffered
The loss suffered determines the amount of damages a court will award the plaintiff if they seek unliquidated damages. The damages are based on an expectation and reliance measure. An expectation measure awards damages based upon where the plaintiff would be if the contract wasn’t breached. It aims to compensate for the benefit the plaintiff expected to receive at the completion of the contract. Whereas a reliance measure calculates damages based on any expenditures and costs incurred by the plaintiff in reliance on completion of the contract.
Where damages are not adequate to compensate a plaintiff’s loss, the court can order a specific performance. This is when the court compels the defendant to continue to perform their contractual duties. This usually occurs where the performance of the contract involves a unique performance by the defendant. An example of this is a sale of property agreement, because every property is different and unique.
In contrast to specific performance, courts can order an injunction to stop a party from performing an act. There are two types of injunctions available to plaintiffs: prohibitory and mandatory.
Courts grant prohibitory injunctions to stop a party from starting, repeating or continuing to breach a contract. For example, a prohibitory injunction can be sought to stop someone selling their property to another party when they have contracted to sell to you.
A mandatory injunction enforces a positive action to stop the other party from breaking their obligations under the contract. For example, if a business anticipates that a business partner plans to breach a confidentiality agreement, they can seek a mandatory injunction to prevent the partner from releasing confidential information that they promised to not share.
There are several routes you can take to remedy a breach of contract: damages, specific performance or injunctions. The type of remedy available will depend on the circumstances of the breach, and losses suffered. If you are affected by a breach of contract or breached yourself, it’s best to seek advice from a specialised contract lawyer.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
Jenelle is a legal Intern at Lawpath as part of the Content Team. She is in her third year of a Bachelor of Law and Bachelor of Science (Physics & Astronomy) at Macquarie University.