Breach of Contract Damages

Introduction

When a party fails to perform a contractual promise, the usual remedy is damages. The core aim is compensatory: to put the claimant, so far as money can do it, in the position they would have been in if the contract had been performed. This is the classic rule from Robinson v Harman (1848).

To recover, a claimant must show: a valid contract, breach, causation, loss, and that the losses are not too remote. The courts also expect claimants to take reasonable steps to limit their losses. This guide sets out the main measures of damages, the limits the law places on recovery, and the leading cases that explain how awards are assessed in practice.

What You’ll Learn

• The main measures of damages: expectation, reliance, restitutionary, nominal and aggravated
• How liquidated damages clauses work and when a clause risks being a penalty
• Limits on recovery: remoteness, mitigation, date of assessment, and the “once and for all” rule
• When non-pecuniary losses (distress or loss of enjoyment) may be compensable
• How to select and evidence the right measure of loss for a claim
• Key cases that shape modern practice and how to apply them
• Practical steps for litigators and contract drafters

Core Concepts

Expectation vs Reliance

Expectation damages

• Put the claimant in the position as if the contract had been performed.
• Common methods include the difference between contract price and market value on the date of breach, or the reasonable cost of cure.
• Example: If goods contracted at £100,000 are worth £110,000 on the due date and the seller fails to deliver, expectation damages are £10,000.
• Authority: The classic formulation is in Robinson v Harman (1848). Expectation can be harder to quantify for services; courts may consider value to the claimant or other fair measures.

Reliance damages

• Aim to put the claimant in the position as if the contract had never been made by recovering wasted expenditure reasonably incurred in reliance on the agreement.
• Pre-contract spending can sometimes be recovered if it was within the parties’ contemplation when they contracted (Anglia Television v Reed [1972]).
• Limits: Reliance cannot be used to avoid a bad bargain. If the defendant shows the contract would have made a loss, the court will not award reliance sums that would leave the claimant better off (C & P Haulage v Middleton [1983]).
• Claimants cannot recover both expectation and reliance in a way that double counts the same loss.

Tip: Start by asking which approach best reflects the true position: loss of bargain (expectation) or wasted spend (reliance). Plead them in the alternative if appropriate.

Restitutionary, Nominal and Aggravated Damages

Restitutionary (disgorgement) damages

• Rare in contract. These focus on stripping profits made by the defendant rather than compensating the claimant’s loss.
• Awarded only in exceptional cases where ordinary damages are inadequate and the claimant has a legitimate interest in preventing profit from the breach. The leading example is Attorney General v Blake [2001], where the Crown recovered profits from a book published in breach of a confidentiality obligation.

Nominal damages

• A small sum awarded to mark that a legal right was breached where no measurable loss is proved.
• Often paired with specific performance where appropriate. See Beswick v Beswick [1968].

Aggravated damages

• Damages for hurt feelings or distress are generally not awarded in contract, but aggravated damages exist in tort and are rarely seen in contractual claims. Their scope in contract is extremely limited.

Liquidated Damages and Penalties

• Liquidated damages clauses set a pre-agreed sum payable on breach, giving certainty and avoiding valuation disputes.
• To be enforceable, the sum must be a genuine pre-estimate of loss (traditional Dunlop Pneumatic Tyre Co Ltd v New Garage [1915]) and not a penalty designed to deter breach.
• Classic warning signs of a penalty include sums that are extravagant in relation to potential loss or a single sum payable for breaches of varying seriousness.
• Modern courts also look at whether the clause protects a legitimate interest and whether the amount is out of all proportion to that interest (post-Dunlop development).
• Drafting points: state the commercial reasons for the figure, avoid obviously excessive sums, and link the figure to expected loss or to a defined business interest.

Limits on Recovery and Assessment

Remoteness

• Loss is recoverable if it arises naturally from the breach or was within the reasonable contemplation of both parties when they made the contract (Hadley v Baxendale [1854]).
• The Achilleas [2008] adds a focus on whether the type of loss was within the responsibility the defendant can fairly be taken to have assumed, even if the loss was foreseeable. This can reduce liability for unusual types of loss.

Mitigation

• Claimants must take reasonable steps to reduce loss. Avoidable loss after breach is not recoverable, but reasonable mitigation costs are.
• If mitigation leads to a benefit, it may be credited against the claim (British Westinghouse v Underground Electric [1912]).
• Reasonableness is judged objectively; perfect mitigation is not required.

Date of assessment

• The usual date is the date of breach, but courts may depart from that where justice requires.
• Later events can be taken into account if they show the true value of the loss (The Golden Victory [2007]).

Non-pecuniary loss

• General rule: no damages for distress or injured feelings in contract (Addis v Gramophone [1909]).
• Exceptions: where the object of the contract is pleasure, relaxation or peace of mind, or where distress flows from physical inconvenience (Farley v Skinner [2001]).
• Reputational loss may be recoverable where it leads to financial loss (Malik v BCCI [1997]).

Other core rules

• “Once and for all” rule: the claimant must recover in one action for loss suffered and future loss reasonably anticipated at the time of trial.
• Burden of proof: the claimant must prove breach, causation and loss. The defendant bears the burden on points such as failure to mitigate or that a liquidated damages clause is penal.
• Reasonableness: a general thread through assessment, influencing mitigation, causation and the proportionality of awards.

Key Examples or Case Studies

Robinson v Harman (1848)

• Context: Damages for loss of bargain where a promised lease could not be granted.
• Key point: Aim is to put the claimant as if the contract had been performed.
• Application: Use expectation measure as the default starting point.

Anglia Television Ltd v Reed [1972]

• Context: Actor repudiated; TV company sought wasted expenditure.
• Key point: Reliance damages can include reasonable pre-contract costs if within the parties’ contemplation.
• Application: Useful where profits are too uncertain to prove.

C & P Haulage v Middleton [1983]

• Context: Claimant tried to claim reliance to recover expenditure barred by contract terms.
• Key point: Reliance cannot be used to escape a bad bargain or to sidestep agreed risk allocation.
• Application: Expect arguments that the project would have lost money; be ready to answer them.

Attorney General v Blake [2001]

• Context: Former spy profited from breach of confidentiality.
• Key point: Exceptional disgorgement of profits where ordinary damages are inadequate and a strong interest exists in preventing profit.
• Application: Consider only in rare cases involving breach of obligations of a special character.

Beswick v Beswick [1968]

• Context: Promise to pay a widow; nephew refused to pay.
• Key point: Nominal damages may be awarded where no measurable loss; specific performance granted to enforce the promise.
• Application: Suits cases where a third party benefit is intended but damages are thin.

Dunlop Pneumatic Tyre Co Ltd v New Garage [1915]

• Context: Clause specified a sum payable for price-cutting breaches.
• Key point: Enforceable if the sum is a genuine pre-estimate; unenforceable if penal.
• Application: Draft liquidated damages with a rationale tied to expected loss.

Hadley v Baxendale [1854]

• Context: Mill lost profits due to late delivery of a crankshaft.
• Key point: Two-limb test for remoteness: ordinary course of things or special knowledge.
• Application: Identify special circumstances and whether they were communicated.

Transfield Shipping v Mercator (The Achilleas) [2008]

• Context: Late redelivery of a chartered ship; owner lost a follow-on fixture.
• Key point: Liability can be limited by what responsibility the defendant can fairly be taken to have assumed.
• Application: Useful in sectors with known market risks and established allocation practices.

British Westinghouse v Underground Electric [1912]

• Context: Buyer replaced faulty turbines and achieved efficiencies.
• Key point: Reasonable mitigation and resultant benefits must be taken into account.
• Application: Credit gains from mitigation; claim reasonable mitigation costs.

Golden Strait Corp v Nippon Yusen (The Golden Victory) [2007]

• Context: Early termination damages for a long-term charter; later war clause would have ended the charter.
• Key point: Events after breach that affect actual loss may be considered.
• Application: Factor in known subsequent events by the time of trial.

Addis v Gramophone [1909]

• Context: Wrongful dismissal and reputational damage.
• Key point: No general award for injured feelings in contract.
• Application: Keep claims focused on financial loss unless an exception applies.

Farley v Skinner [2001]

• Context: Survey failed to report aircraft noise; house bought for quiet enjoyment.
• Key point: Damages for distress available where the contract’s purpose includes pleasure or peace of mind, or where distress flows from physical inconvenience.
• Application: Plead the specific purpose of the contract.

Malik v BCCI (Mahmud) [1997]

• Context: Reputational “stigma” from working for a discredited bank.
• Key point: Reputational loss is recoverable where it causes measurable financial loss.
• Application: Link reputation harm to actual earnings loss with evidence.

Practical Applications

• Choosing the measure

  • Start with expectation (loss of bargain). If profits are speculative, switch to reliance (wasted expenditure) and plead in the alternative.
  • Check for overlap to avoid double recovery.

• Quantifying loss

  • For goods: use market minus contract price on breach date.
  • For services or defective performance: consider reasonable cost of cure or diminution in value, whichever reflects the real loss and is proportionate.
  • Gather evidence: valuations, invoices, project budgets, forecasts and expert reports where needed.

• Remoteness and causation

  • Identify the type of loss claimed and whether it arises in the ordinary course or from special knowledge shared at formation.
  • In sectors with established risk allocation, consider whether loss falls within assumed responsibility (The Achilleas).

• Mitigation

  • Act promptly to source substitutes, re-tender, re-sell or re-hire. Keep detailed records of steps taken and costs incurred.
  • Credit gains achieved through mitigation; claim reasonable mitigation costs as part of damages.
  • You need only act reasonably, not perfectly.

• Date of assessment

  • Default is breach date. If later events show the true position, ask the court to account for them (The Golden Victory).

• Non-pecuniary and reputation losses

  • Only claim distress damages where the contract’s purpose includes enjoyment or peace of mind, or where distress follows physical inconvenience (Farley v Skinner).
  • For reputation, claim only demonstrable financial loss (e.g., reduced job prospects) with evidence (Malik v BCCI).

• Liquidated damages clauses

  • Draft with care: tie sums to estimated loss or a clear business interest, and avoid sums that look punitive.
  • Explain calculation methods in the contract (e.g., daily rate, caps, tiered sums). Keep records showing pre-contract estimates.
  • Expect scrutiny under the penalty rule; ensure proportionality.

• Exceptional remedies

  • Consider disgorgement only where conventional damages are plainly inadequate and a strong interest exists in preventing profit (AG v Blake).
  • Specific performance may be appropriate even where damages are nominal (Beswick).

• Litigation strategy

  • Plead all viable measures and limits clearly. Anticipate defences on remoteness, mitigation and penalties.
  • Use Part 36 and settlement strategies once loss is reasonably clear to control costs.

Summary Checklist

• Confirm contract, breach, causation and measurable loss
• Select expectation or reliance (or plead both in the alternative without double counting)
• Test every head of loss for remoteness (Hadley) and assumed responsibility (The Achilleas)
• Evidence mitigation steps and credit any benefits obtained
• Choose the correct date of assessment; consider later events (The Golden Victory)
• Non-pecuniary loss only in narrow categories; link reputation harm to financial loss
• Review any liquidated damages for penalty risk; document the commercial rationale
• Consider whether an exceptional remedy (specific performance or disgorgement) is truly justified
• Apply the “once and for all” rule; claim present and future losses now
• Allocate burden of proof: claimant on loss; defendant on mitigation failure and penalties

Quick Reference