Damages (in the context of contracts)

A common law remedy where the court orders that money is paid by the unsuccessful party to the successful party in litigation to compensate for loss. Damages is the most common remedy sought in cases where there has been a breach of contract.

Damages usually operate as a substitute for performance of contractual obligations, and seek to put the plaintiff in the same position that they would have been in if the contractual obligations had been properly performed. For damages to be awarded, the quantifiable loss suffered must be proved to not be too remote from the breach, and the successful party must take reasonable steps to reduce the loss suffered. The monetary value of damages is determined by the court, taking into account the losses incurred by the successful party. Damages are paid in a one-off lump sum.

There are three specific types of compensatory damages that may be awarded for breach of contract: expectation damages, reliance damages, and loss of chance damages.

Types of damages awarded:

  • Expectation damages are the most common form of damages, and serve to address the expectation of receiving the unsuccessful party’s performance.
  • Reliance damages compensate the successful party for monetary losses incurred in performance of the contract. They are only awarded where expectation damages are inadequate or cannot be established.
  • Loss of chance damages can be awarded where the contractual breach precluded the successful party from an opportunity for further gain, thus compensating them for being deprived of the chance to make profit.

Where damages are awarded in a breach of contract case, they are likely to be accompanied by a costs order, which stipulates that costs follow the cause. Therefore, the unsuccessful party must pay the legal costs of the successful party.