Legal assessment damages calculation

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Legal assessment damages calculation

If you are thinking of bringing a claim, it is essential to do a cost/benefit analysis to consider whether it is worthwhile, taking into account all the risks and variables. If you don’t, then you will end up pursuing a claim that is worthless. No claimant wants to end up “out of pocket”. 

There are broadly three things you need to know:

  • What are my chances of winning;
  • How much am I likely to be awarded if I win; and
  • What are my chances of actually getting that money from the other side?

This insight looks at the second question – what damages are you likely to be awarded if you win. On the other side of the coin, if you are the defendant, you need to know not only what your chances are of successfully defending the claim but also, if you do lose, how much are you going to have to pay? Most costs will have to be reasonable, and proportionate.

Commercial dispute remedies

Of course, not all possible remedies that you might be looking for are financial. Non-financial remedies include an injunction (to restrain future behaviour), specific performance (to force the defendant to perform a particular action, as contracted) or a declaration or rights. If damages are an adequate remedy, then a claim for any of these remedies will likely fail. We assess for you.

Different financial remedies

Not all court awards of money are damages. For example, the court can also award a sum of money as a debt or as equitable compensation. These arise from different types of claim (e.g. a debt is a specific sum of money due under a contract, rather than as damages for breach, and some different rules apply, for example, there is no need to try to mitigate your loss in a debt claim (see below)).

In a partnership dispute case, the likely order of the court is that an account be taken, which can include issues of damages between the partners.

Types of damages

Broadly, damages can either be liquidated or non-liquidated.

Liquidated damages in a commercial dispute

Liquidated damages are those where the sum is either fixed or can be calculated. For example, a seller agrees to sell a factory machine to a buyer for £1,000 but fails to deliver. The buyer has to go into the market and find another of the same machine but the price has gone up to £1,100. His damages claim is for the difference in price, £100, and is therefore a liquidated claim, because it can be calculated. A liquidated amount can be included in a business contract, although care must be taken to ensure that it is not drafted as a penalty, and thus void.

Unliquidated damages in a commercial dispute

The classic example of an unliquidated claim would be for pain and suffering in a personal injury claim – there is no way to calculate that so the court just has to fix a figure (whereas the medical bill is a fixed sum and is therefore a liquidated claim).

How to calculate damages in a commercial dispute

The first crucial thing when considering the amount of damages is to identify the basis on which damages are being awarded. For example, are they for breach of contract, or some sort of wrong, e.g. negligence, or trespass to goods or land.

Damages for a breach of contract claim

Broadly, if the claim is for breach of contract, the court’s intention is to put the claimant in the position it would have been in “but for” the breach of contract, i.e. if the contract had been performed properly.

Damages in a negligence claim

In a tort claim, e.g. a negligence claim, the intention is to put the claimant in the position it would have been in had the wrong not been committed. Sometimes this leads to a similar result to the contract test, for example, in a professional negligence claim.

If the court is awarding equitable compensation, for example for a breach of trust, then it will award losses flowing directly from the breach, using hindsight at trial (which is much more generous to the claimant). Again, there can be an overlap between the types of claim on the same facts and choosing the correct cause of action to purse can make a significant difference to the damages claimable.

Restrictions on the recovery of damages

There are various principles which limit or restrict the recovery of damages.

Causation

First, there is causation. The principle is broadly the same in both contract and tort. A person is only liable for damages that not only were factually caused by the breach (i.e. that but for the breach they would not have occurred) but also were legally caused because it is unfair to hold a defendant liable where there is some intervening cause. The law on this area is quite complex and usually needs detailed consideration – we can provide that assessment. It is not uncommon to instruct an expert to help determine causation.

Mitigation

Second, there is mitigation. Where a person is claiming damages, he must try to lessen, or mitigate, his loss, as far as it is reasonable to do so. So in the sale of goods example above, if not having the machine would have cost the claimant say £500 because he would not have been able to use it to make a profit, he is obliged to spend the extra £100 to mitigate his loss rather than sitting back and claiming the £500 loss (although he could claim this if no alternative machine were available). However, the principle of mitigation does not apply to a debt claim, or to equitable compensation.

Remoteness of damage

Third, there is remoteness of damage. Not every loss that seems to follow from a breach is compensated in damages. In a contract claim, broadly, the loss must have been reasonably foreseeable at the time of the contract. That is either because it would follow in the ordinary course of things generally, or it would have been in the specific contemplation of the parties at the time. In tort, the test is whether the loss was foreseeable at the time the duty causing the loss was breached.

Contributory negligence

Fourth, the defendant may be able to claim contributory negligence on the part of the claimant. This can apply if the claim is a tort claim for negligence or a contract claim for a breach of duty which covers the same ground (typically, a professional negligence claim). If the court thinks that the loss has been caused partly by the claimant’s own fault, damages can be reduced by whatever the court thinks is just and equitable in the circumstances (which could be up to 100% if justifiable).

Other contributory factors which the court will assess

There are other factors which can affect damages, especially in specific cases (for example, damages might be limited by an agreement between the parties). Consideration of the likely damages is usually a complex and specialist area which depends on the exact circumstances of each case.

Thinking about damages before presenting a court claim

It is too often the case that a claimant rushes into a case focusing on the question of liability and not considering how much the damages will actually be if the claim succeeds. The law reports are full of cases where the claimant wins in principle but does not actually recover any money.

Taking the time to assess damages

For example, in one case a solicitor’s client complained that his solicitor had negligently failed to warn him of a right of way over land he was buying and so should pay damages. The court found that the solicitor had indeed been negligent in failing to warn, but the claimant would have gone ahead and bought the land anyway even if he had been warned. Therefore there was no loss (and the claimant ended up paying the costs of the claim!).

It is always essential when thinking about bringing or defending a claim to consider not only the chances of success but what the damages are likely to be. This is a complex and specialist area.

Alex Kleanthous heads the commercial dispute team at Gannons. Alex advises businesses bringing or defending claims. Do not hesitate to get in touch with Alex if we can be of assistance to your business.