How are damages for breach of contract assessed?

The legal position

The measure of damages. The object is to place the claimant, so far as money can, in the same situation as if the contract had been performed. That is its expectation interest. In practice, the measure is ordinarily the difference between what the claimant ought to have received and what it in fact received. Where work has been left incomplete, the measure is ordinarily the amount by which the total cost of the works, including sums already paid and the cost of completion, exceeds the contract price.

Remoteness. The claimant may recover two kinds of loss. The first is loss arising naturally, in the usual course of things, from the breach. The second is loss that may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of its breach. An unusual loss of which the defendant had no reason to be aware is not recoverable. The exception is where the risk of such loss was communicated to the defendant when the contract was made.

Mitigation. The claimant must take reasonable steps to minimise its loss, and cannot recover loss that could reasonably have been avoided. The standard is that of a reasonable person in the claimant's position. It is not a standard of perfection.

Mental distress. Damages for distress and disappointment are not recoverable in ordinary commercial contracts. They are recoverable in two situations. The first is where the principal object of the contract was to provide enjoyment or peace of mind, as with a contract for a holiday or for the photography of a wedding. The second is where the distress results from physical inconvenience caused by the breach, as where a dwelling house is so defectively constructed that it cannot be occupied.

Agreed sums. Where the claim is for the contract price itself, such as payment for goods delivered or work done, it is a claim in debt, and no loss need be proved.

Liquidated damages. A clause fixing the sum payable upon breach is enforceable unless it is a penalty. A penalty is a provision that imposes a detriment on the party in breach out of all proportion to any legitimate interest of the innocent party in the performance of the contract. A penalty is unenforceable, and the claimant is left to prove its actual loss.

Practical implications

Non-delivery of goods. Where a seller fails to deliver, the buyer may ordinarily recover the difference between the contract price and the market price of the goods at the time when they ought to have been delivered. In practice, that is often the additional cost of obtaining equivalent goods elsewhere. Foreseeable losses caused by the delay may also be recoverable.

Incomplete building works. Where a contractor abandons the works, the owner (the "employer" in a building contract) may ordinarily recover the amount by which the total cost of completing and correcting the works, including sums already paid, exceeds the original contract price, together with other foreseeable losses caused by the delay.

Loss of profit. Loss of profit is recoverable where it was within the parties' contemplation and is proved. Accounts and business records are persuasive evidence. Unsupported estimates carry little weight.

No punitive element. However reprehensible the conduct of the party in breach, damages for breach of contract compensate the innocent party's loss. They do not punish the party in breach.

Recommended steps

The claim should be assembled from documentary evidence, including receipts, invoices, quotations, bank statements, photographs of the relevant condition before and after the breach, and, for claims for loss of profit, the claimant's accounts.

The claimant should mitigate its loss in a reasonable manner, for example by procuring substitute performance, re-letting or reselling, and should keep a record of the steps taken and the reasons for them.

The claimant should consider whether the claim is in truth a claim in debt for the agreed price, since such a claim is more straightforward to establish.

A letter of demand should be sent, stating the sum claimed with a breakdown of its constituent items. Many claims are resolved at that stage.

Claims not exceeding TT$50,000 may be brought in the Petty Civil Court. In most cases proceedings must be commenced within four years of the breach. See What is the time limit for bringing a claim for breach of contract?