Contract Remedies for Breach: Damages, Specific Performance,...

Introduction

Contracts create enforceable duties. When one party breaks a term, the law offers several remedies. The usual aim is to put the claimant, as far as money can do it, in the position they would have been in if the contract had been performed. Where money is not suitable, the court may order performance, restrain conduct, or unwind the deal.

A successful claim normally requires: a valid contract, breach, loss, a causal link between breach and loss, and losses that are not too remote. This guide sets out the main remedies with leading cases and practical pointers.

What You’ll Learn

• What damages aim to achieve and how to measure them (expectation, reliance, restitution)
• How courts handle causation, remoteness, and mitigation
• When specific performance is ordered and when it is refused
• When rescission is available and the main bars to it
• How injunctions work in contractual settings
• The effect of agreed damages clauses and the modern penalty rule
• How to apply these rules in problem questions and real disputes

Core Concepts

Damages: aim and categories

The general rule is compensation, not punishment. In contract, the standard measure is the expectation interest: put the claimant in the position they would have been in had the bargain been performed. This was set out in Robinson v Harman (1848) 1 Ex 850.

Expectation can be measured in several ways:

• Difference in value: the gap between what was promised and what was delivered.
• Cost of cure: the reasonable cost to remedy the breach. Courts will not award a cost of cure that is out of proportion to the benefit. In Ruxley Electronics v Forsyth [1996] AC 344 (the swimming pool depth case), damages were awarded for loss of amenity rather than the full cost of rebuilding.
• Loss of profit: where the breach causes missed revenue or business opportunities that were within the parties’ contemplation.

Reliance loss covers wasted expenditure incurred in reliance on the contract. It can be claimed where expectation loss is hard to prove, but the defendant may show that the claimant would not have recouped those costs even if the contract had been performed (The Mamola Challenger [2010] EWHC 2026 (Comm); Anglia Television v Reed [1972] 1 QB 60).

Restitution or gain-based awards are exceptional. In Attorney General v Blake [2001] 1 AC 268, an account of profits was ordered where ordinary remedies were inadequate and the defendant had profited from the breach in a way the law considered unacceptable. Negotiating damages (sometimes called Wrotham Park damages) may be available in limited categories, but they are not a general substitute for expectation loss (One Step (Support) Ltd v Morris-Garner [2018] UKSC 20).

Causation, remoteness and mitigation

• Causation: the claimant must show the loss was caused by the breach. The “but for” test is a common starting point.
• Remoteness: losses are recoverable if they arise naturally from the breach (the usual course of things) or were within the reasonable contemplation of both parties when they made the contract. This is the two-limb test in Hadley v Baxendale (1854) 9 Exch 341, applied in cases such as Victoria Laundry (Windsor) Ltd v Newman Industries [1949] 2 KB 528 and The Heron II (Koufos v Czarnikow) [1969] 1 AC 350. Special circumstances that increase potential loss must be communicated to the other party.
• Assumption of responsibility: The Achilleas [2008] UKHL 48 shows that in some markets the court will ask whether the type of loss is of a kind the contract-breaker can fairly be taken to have accepted responsibility for.
• Mitigation: claimants must take reasonable steps to reduce their loss. They cannot recover losses that could have been avoided by reasonable action, but reasonable mitigation expenses are recoverable (British Westinghouse v Underground Electric [1912] AC 673).

Interest and timing: damages are typically assessed at the date of breach, but the court can depart from that where it is fair to do so. Simple interest is often awarded under statute or in equity.

Specific performance and injunctions

Specific performance is a discretionary order requiring performance of the contract. It is usually refused if damages are adequate, or if the order would require constant supervision by the court. In Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 2 WLR 898, an order to keep a supermarket open was refused. Specific performance is more common for contracts concerning unique assets (such as land) and rare goods, and is usually refused for personal service and employment contracts.

Injunctions restrain or require actions. A prohibitory injunction can prevent further breach of a negative promise (for example, not to compete or not to disclose). Courts are cautious with mandatory injunctions that effectively compel performance, but they are available in proper cases, especially in commercial contexts where supervision is manageable (LauritzenCool AB v Lady Navigation Inc [2005] EWCA Civ 579). Interim injunctions may preserve the position pending trial where there is a serious issue to be tried and damages would not be an adequate remedy.

Rescission: scope and bars

Rescission sets aside a contract and aims to restore the parties to their pre-contract positions. It generally responds to vitiating factors such as misrepresentation, mistake, duress, or undue influence, rather than ordinary breach. In Whittington v Seale-Hayne (1900) 82 LT 49, rescission and indemnity were allowed after misrepresentation about the condition of premises.

Bars to rescission include:

• Affirmation: if the claimant, after discovering the problem, chooses to continue with the contract (Long v Lloyd [1958] 1 WLR 753).
• Lapse of time: especially for non-fraudulent misrepresentation (Leaf v International Galleries [1950] 2 KB 86).
• Impossibility of substantial restoration: where returning the parties to their original positions is not feasible.
• Intervention of third-party rights: where an innocent third party has acquired rights.

Courts can award damages in lieu of rescission for misrepresentation under section 2(2) Misrepresentation Act 1967.

Agreed damages clauses

Parties often include a clause that sets a sum payable on breach. The modern rule from Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67 is that such clauses are enforceable if they protect a legitimate interest and the sum is not out of proportion to that interest. The old label of “penalty” is reserved for provisions that are extravagant, oppressive, or not linked to any legitimate interest. A well-drafted liquidated damages clause can save time and costs by avoiding a full loss calculation.

Key Examples or Case Studies

• Robinson v Harman (1848) 1 Ex 850

  • Point: Sets the expectation measure. Put the claimant, so far as money can do, in the position as if the contract had been performed.
  • Use: Baseline for calculating loss of bargain.

• Hadley v Baxendale (1854) 9 Exch 341

  • Point: Two-limb test for remoteness. Losses that arise naturally, or were within both parties’ reasonable contemplation at the time of contracting.
  • Use: Screens out unusual or special losses unless notified.

• Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48

  • Point: Sometimes the question is whether the defendant assumed responsibility for the kind of loss, not just whether it was foreseeable.
  • Use: Particularly relevant in market-based contracts (e.g., shipping, commodities).

• Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344

  • Point: Cost of cure can be refused if it is out of proportion. Court may award loss of amenity instead.
  • Use: Useful where performance defects are minor yet reduce enjoyment or utility.

• The Mamola Challenger [2010] EWHC 2026 (Comm)

  • Point: Reliance loss is available, but the defendant can show the claimant would not have recouped the spending even if the contract had been performed.
  • Use: Framing reliance claims and defending them.

• Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 2 WLR 898

  • Point: Specific performance refused where it would require ongoing supervision and compel a business to trade.
  • Use: Limits on equitable orders for running businesses.

• Whittington v Seale-Hayne (1900) 82 LT 49 and Long v Lloyd [1958] 1 WLR 753

  • Point: Rescission for misrepresentation and the bar of affirmation.
  • Use: Act promptly and avoid treating the contract as continuing once the problem is known.

• Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67

  • Point: Agreed damages are enforceable if they protect a legitimate interest and are not out of proportion.
  • Use: Assessing the validity of pre-agreed sums on breach.

• LauritzenCool AB v Lady Navigation Inc [2005] EWCA Civ 579

  • Point: No blanket bar on injunctions that have the practical effect of compelling performance in commercial cases.
  • Use: Injunctive relief to prevent further breach where damages are not enough.

Practical Applications

• Structure your analysis

  • Confirm a valid contract, identify the term breached, and check any exclusion or limitation clause (consider UCTA 1977 and, for consumer contracts, the Consumer Rights Act 2015).
  • Prove loss with evidence: invoices, expert reports, market data, and contemporaneous records.

• Calculate damages methodically

  • Start with expectation: difference in value, cost of cure (if proportionate), and lost profits.
  • Consider reliance loss if expectation is hard to quantify, but be ready to deal with the Mamola Challenger limitation.
  • Add incidental and consequential losses that pass the remoteness test (e.g., reasonable storage, transport, or cover costs).
  • Apply mitigation: show reasonable steps to reduce loss and include mitigation expenses.

• Address remoteness and special knowledge

  • Identify losses that arise in the usual course.
  • Flag any special circumstances communicated at formation that widen the scope of recoverable loss.
  • If the contract is in a specialised market, consider whether The Achilleas may limit the type of recoverable loss.

• Check agreed damages clauses

  • If there is a liquidated damages clause, assess whether the sum protects a legitimate interest and is proportionate under Cavendish/ParkingEye.
  • If enforceable, the agreed sum will usually be the remedy.

• Consider equitable relief early

  • Specific performance: more likely for unique assets and where damages are plainly inadequate. Avoid asking for orders that demand ongoing court supervision.
  • Injunctions: effective to restrain breach of negative covenants or to prevent repeat breaches. For interim injunctions, prepare on adequacy of damages and balance of convenience.

• Rescission steps

  • Use rescission where misrepresentation, mistake, duress or undue influence tainted the deal.
  • Act quickly, avoid affirmation, and be ready to return what you received.
  • If rescission is barred, consider damages in lieu under Misrepresentation Act 1967 s 2(2).

• Practical litigation points

  • Preserve evidence from day one.
  • Send a clear letter before action with a quantified schedule of loss.
  • Keep mitigation decisions documented.
  • Consider settlement and ADR alongside interim relief where appropriate.

Summary Checklist

• Expectation damages aim to place the claimant in the position of performance
• Choose the right measure: difference in value, cost of cure (if proportionate), lost profits, or reliance loss
• Prove causation; apply Hadley v Baxendale for remoteness; consider The Achilleas in special markets
• Mitigate reasonably; unreduced avoidable losses will not be recoverable
• Specific performance: only where damages are inadequate and no constant supervision is needed
• Injunctions: common for negative promises; possible to restrain ongoing breaches
• Rescission: mainly for misrepresentation, mistake, duress, undue influence; watch for affirmation, lapse of time, impossibility, and third-party rights
• Agreed damages clauses: enforceable if protecting a legitimate interest and proportionate (Cavendish/ParkingEye)
• For consumers, check statutory remedies under the Consumer Rights Act 2015

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