Introduction
Contract remedies represent the legal mechanisms employed when one party fails to fulfill their obligations as stipulated in a legally binding agreement. These remedies are implemented to protect the interests of the non-breaching party, ensuring, as closely as possible, that they are placed in the position they would have occupied had the contract been correctly executed. These technical remedies are designed to address the failure of performance, which arises from the breach. The fundamental principle that governs the use of these remedies is that of restoring the agreed bargain as far as it can be achieved in financial terms. Key requirements in awarding remedies depend upon the specific facts of each case and the precise nature of the contractual breach, which will require a detailed evaluation by the courts. Contract remedies encompass a broad range of actions, each aimed at addressing different facets of contractual failures, ranging from monetary compensation to court orders compelling performance.
Damages: Compensating for Loss
Damages are the most commonly awarded contract remedy, aiming to provide financial compensation to the non-breaching party for losses incurred due to the breach. The central principle guiding the assessment of damages is compensation. The objective is to place the claimant, so far as money can achieve it, in the position they would have been in had the contract been performed (Robinson v Harman (1848) 1 Ex. 850). The compensation awarded is determined by the courts, subject to considerations of remoteness and mitigation of losses, and covers both direct losses and, in specific cases, consequential losses. Expectation loss, a species of damages, is designed to protect the claimant’s expectation of receiving the performance they had contracted for. The focus is on what the claimant would have gained, had the contract been properly performed. For example, if a builder fails to complete a house on time, damages would cover the cost of alternative accommodation and the loss of rental income. In situations where expectation loss is not easily quantified, the court may consider reliance loss, compensating the claimant for expenses incurred in preparing for the contract. [The Momola Challenger] clarified that reliance losses are simply an aspect of expectation losses. Damages for non-pecuniary losses are generally not recoverable. However, there are limited exceptions, such as contracts specifically aimed at providing pleasure, relaxation or freedom from distress (Jarvis v Swan Tours Ltd. [1973] QB 233). It was held in Watts v Morrow [1991] 4 All ER 937, that damages for mental distress would be awarded when that distress was caused by physical inconvenience which resulted from a breach of contract. Remoteness is determined by the rules established in Hadley v Baxendale (1854) 9 Exch. 341, which limits recovery to losses that either arise naturally from the breach or were within the reasonable contemplation of both parties. Moreover, The Achilleas [2008] UKHL 48 established that the compensation claimed must be of a kind that the contract-breaker ought reasonably be taken to have accepted responsibility for. This principle was affirmed in Supershield [2010] EWCA Civ 7. Claimants are also under a duty to mitigate any loss, and failing to do so may result in a reduction of the damages recoverable (British Westinghouse Co. v. Underground Electric Railways Co. of London Ltd. [1912] AC 673).
Specific Performance: Compelling Contractual Fulfillment
Specific performance is an equitable remedy where a court orders the breaching party to perform their contractual obligations. This remedy is not granted as a matter of course, but is limited to situations where damages are considered inadequate (Co-Operative Insurance Society v. Argyll Stores [1997] 2 WLR 898). Specific performance is typically awarded in cases involving contracts for the sale of unique items or land, as these are not readily replaceable. However, the courts are reluctant to make orders for specific performance in cases that require continuous supervision, such as an order to carry on a business, due to the practical difficulties in monitoring and enforcing these kinds of orders. The courts also consider whether such an order would unfairly place the breaching party under a threat of quasi-criminal orders of contempt, a point which is emphasized by Lord Hoffman in the Co-Operative Insurance Society case. In cases where a contract is for the transfer of land, an order for specific performance is likely to be granted, unless there is a good reason why it should not.
Injunctions: Restraining Contractual Breach
Injunctions are another form of equitable remedy and consist of court orders requiring a party to either refrain from or undertake specific actions. They are typically used in contract law to prevent a breach from continuing or to restrain a party from committing a breach, specifically, a prohibitory injunction can be given where a party is ordered not to undertake a particular course of action. In the context of contract law, injunctions can be used to enforce non-compete clauses or confidentiality agreements, preventing further breaches of contract. There is a general principle that injunctive relief is unlikely to be given when it would have the effect of compelling performance in a service contract where the contract cannot be forced upon the defendant such as in Lumley v Wagner (1852) EWHC (Ch) J96. However there are exceptions to this principle as detailed by Mance J in Lauritzencool AB v Lady Navigation Inc [2005] EWCA Civ 579 where it was stated that the principle is only relevant to a limited set of personal services contracts such as ones where there is a need to maintain a specialist skill.
Rescission: Setting Aside the Contract
Rescission, a remedy that operates to set a contract aside, treats the contract as if it never existed. It is used primarily in cases of misrepresentation, mistake, duress or undue influence, effectively nullifying the contract and restoring both parties to their pre-contractual positions. Rescission is available as a matter of right, but is subject to ‘bars’, such as affirmation of the contract by the claimant, or the fact that restitution cannot be achieved. The right to rescind a contract may be lost if there has been a significant passage of time, such as in Leaf v International Galleries [1950] 2 KB 86. Similarly, restitution will be barred if it is not possible for the parties to return to their original position before the contract was made.
In situations where rescission is granted, the contract is treated as if it never existed; as such the parties are released from their obligations under the contract. Under restitution an indemnity may be awarded that compensates for expenses incurred in fulfilling the terms of the contract (Whittington v Seale-Hayne (1900) 82 LT 49). Rescission may be granted alongside or independent from an award of damages in the case of fraudulent or negligent misrepresentations.
Conclusion
Contract remedies are a vital component of contract law, providing a range of mechanisms to ensure parties comply with their obligations, or to achieve restitution in situations where a contract has failed. Damages are the standard remedy for most breaches, aiming to compensate the claimant’s loss of bargain, whilst specific performance is an exceptional remedy reserved for situations where damages are inadequate. Injunctions provide a means of enforcing negative contractual terms, whilst rescission sets contracts aside for defects in their formation. Each remedy serves a unique purpose and is applied depending on the particular facts of each case and the nature of the breach. Courts are required to carefully assess these factors when deciding on the appropriate remedy, to ensure fairness and justice between the contracting parties. The current legal landscape of contract remedies is a balance between the protection of contracting parties interests and a desire to maintain commercial certainty within legal systems.
This paper has used the case of Robinson v. Harman (1848) 1 Ex. 850 as a fundamental principle to evaluate the available remedies. The case sets the tone for the approach to damages as its states that the claimant should be placed in the position that they would have been in had the contract been properly performed. There is a clear connection from this principle to specific performance, in that specific performance is given in circumstances where damages do not provide an adequate remedy. The cases of Co-Operative Insurance Society v. Argyll Stores (1997) 2 WLR 898 and Lumley v Wagner (1852) EWHC (Ch) J96 have demonstrated the circumstances in which the courts will and will not grant specific performance and injunctive remedies. The case of Leaf v International Galleries [1950] 2 KB 86 has demonstrated some limitations to the remedy of rescission. The interplay between common law principles and equitable remedies demonstrates the various avenues that a claimant may take to obtain recourse when a contract is broken.
