Substantial Damages in Contract Law

• Damages are monetary compensation. In a successful action for breach of contract, they are available as of right
• Nominal Damages are awarded where there has been a breach of contract but it is not possible for the injured party to demonstrate loss
• Substantial damages reflect the true loss to the claimant

• The claimant must show that there was a breach of contract that  caused the loss suffered both in fact and in law
• Causation, in fact, may be established by showing that the breach was a substantial cause of the loss suffered, not that it was the only cause of loss: SMITH HOGG & CO V BLACK SEA INSURANCE (1939)
• Causation in law is more commonly known as remoteness of damage. Damage that is too remote is not recoverable. 

• Alderson B stated that to be recoverable, losses must be such as arise '...Naturally, i.e, according to the usual course of things, from such breach of contract itself', or 'such as may reasonably be supposed to have been in the contemplation of both parties, at the time they mad ethe contract...'
• 2 Limb test

Victoria Laundry v Newman Industries (1949) The Heron II [1969] 

• In this case, Asquith LJ said the General principle is that C can only recover losses actually resulting from the breach, which was at the time of the contract 'reasonably foreseeable' as likely to result from the breach.

• This formulation was criticised by the HL as it confuses the measure of damages in contract with tort

•(e.g.) Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd, The Sylvia (2010) per Hablen J. HAMBLEN J EXPLAINED THAT: ‘the general test of remoteness applicable in the great majority of cases. However, there may be ‘unusual cases’ such as the Achilleas itself, in which the context, surrounding circumstances or general understanding in the relevant market will make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those rare cases where the application of the general test leads or may lead to unquantifiable, unpredictable, uncontrollable or disproportionate liability or there is clear evidence that such a liability would be contrary to market understanding and expectations.’  The orthodox [Hadley v Baxendale] approach remains 

• The duty to take reasonable steps to minimise the loss
• This includes but goes beyond a duty not to augment the loss
• It may include e.e accepting substitute performance from the defendant even though it is in breach of the original contract: PAYZU V SAUNDERS (1919).

• Mitigation of loss does not include running the risks of 'complicated and difficult' litigation
• No requirement to mitigate by embarking on complicated litigation
• Harman J, ‘I am of the opinion that the so called duty to mitigate does not go as far as to oblige the innocent party…to embark on a complicated and difficult piece of legislation against a third party.’

• Where mitigation effectively eradicates the loss, nominal damages only will be awarded
• •As Viscount Haldane LC explained, ‘The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach: but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps’

• To compensate- carrying the claimant forward

• Expectation loss is intended to place the claimant in the position they would have been in had the contract been performed properly 

• It is said to compensate for loss suffered to the claimant's 'expectation interest'. That is, to the loss of any benefit or gain that the claimant should have received under the contract

• Expectation loss may, for example, take the form of loss of profit, where inferior or faulty goods are supplied, it may take the form of difference in value, and where faulty work is provided it may take the form of cost of cure.

• The classic explanation of expectation loss

• Expectation loss, however, goes beyond this. It includes the loss of ' Subjective benefits' such as disappointment, loss of enjoyment etc
• Ruxley Electronics v Forsyth (1996) and Farley v Skinner (No 2) (2001)
  

• Expectation loss includes compensation for loss of chance 

• Reliance loss is simply out of pocket expenses spent upon the performance of contract

• Reliance loss fails to meet the purpose set out by Parke B. Rather it returns the claimant to the financial position s/he was in before the commencement of the contract

• As such it equates more closely to the measure of damages commonly awarded in tort

• Where the reliance loss is too speculative

• The court will not allow such a claim if it results in the defendant being liable to compensate for losses resulting from a bad bargain rather than the defendant's breach: C&P HAULAGE V MIDDLETON (1983)

• It is not necessary for the claimant to demonstrate that the contract would have been profitable in order for reliance loss to be awarded. It is necessary to show that the contract would have, at least, broken even

• Where the contract would have resulted in a loss then a claim for reliance loss would have to be reduced

• The burden of proving a bad bargain is on the defendant 

• Reliance Losses

• Reliance Losses are a species of expectation losses