How damages for breach of contract are calculated

Claiming damages in breach of contract claims

Being the victim of a breach of contract does not automatically mean you are entitled to substantial damages. If you are entitled to compensation, how much can you realistically recover? Before bringing a claim, it is important to assess both the legal merits and the likely value of any damages.

If you need legal support with a breach of contract claim or dispute, we can help. Whether you are considering a claim or defending a damages claim, we can assess the legal merits, evaluate potential losses and explore options for resolving the dispute. Please get in contact to discuss your circumstances.

How do contract law damages work?

A breach of contract may give rise to a claim for damages, but the amount recoverable depends on the circumstances and the loss caused by the breach.

Damages can comprise several elements, some less obvious than others. Before issuing a claim, a party should consider the likely value of any award and whether pursuing the claim is commercially worthwhile. We can help assess the potential recovery and the risks involved.

Damages are generally intended to put the injured party in the position it would have been in had the contract been performed. The recoverable loss must satisfy the relevant legal requirements, including causation, remoteness and mitigation. The contract may also contain provisions limiting or excluding liability.

Can you claim compensation in the UK for breach of contract?

Under English law, damages for breach of contract are generally intended to compensate for legally recognised loss rather than to punish the party in breach. Compensation for stress, inconvenience or injury to feelings is not usually available in ordinary commercial contract claims, although exceptions may apply in particular circumstances.

Can you claim damages for loss of opportunity?

A claim for loss of opportunity may be possible where a breach has deprived a party of a genuine commercial opportunity. However, these claims can be difficult to establish and quantify. The claimant must provide sufficient evidence that the breach caused the loss and that the loss was not too remote. Where the outcome depended on a hypothetical future event, the court will need to assess the likelihood of the opportunity producing a financial benefit.

How to work out breach of contract damages

When assessing potential damages, consider the following:

• When did the breach occur? – The date of breach may be relevant to assessing damages, although the appropriate valuation date depends on the nature of the claim and the circumstances.
• What financial loss was caused? – This may include additional costs, liabilities incurred to third parties and profits lost as a result of the breach, provided the relevant legal requirements are met.
• What is the difference in value or the reasonable cost of remedying the breach? – Depending on the circumstances, damages may reflect the difference between the value promised and the value received, or the reasonable cost of putting matters right. A claimant does not necessarily have to carry out the remedial work before claiming its reasonable cost.
• Has the breach caused additional staff costs or wasted time? – Costs incurred investigating the breach or dealing with its consequences may be recoverable in appropriate cases, but the claimant must provide evidence of the additional expenditure or loss and establish the necessary link to the breach.
• Have goods been rejected or not delivered? – Where goods are not delivered or are wrongfully rejected, damages may be assessed by reference to the difference between the contract price and the relevant market or replacement price. The applicable measure depends on the circumstances.
• Are the goods defective? – Damages may reflect the difference between the value of the goods as delivered and the value they would have had if they had complied with the contract. Reasonable repair or replacement costs may also be relevant.
• Has there been mental distress or loss of amenity? – Such damages are not generally available in ordinary commercial disputes, but may be recoverable in limited circumstances, for example where providing pleasure, relaxation or enjoyment was an important object of the contract.
• Did the breach cause the loss? – The claimant must establish that the loss was caused by the breach. This often involves comparing the actual position with the position the claimant would probably have been in had the contract been performed.
• Have you mitigated your loss? – A claimant must take reasonable steps to avoid or reduce its losses. For example, if a supplier fails to deliver goods, the buyer may need to seek a reasonable alternative rather than incur avoidable additional costs. The law does not require every conceivable step to be taken, but unreasonable failure to mitigate can reduce the damages recoverable.
• Is the loss too remote? – The loss must satisfy the legal rules on remoteness. Generally, it must arise naturally from the breach or have been within the reasonable contemplation of the parties when they entered into the contract.

Legal advice for breach of contract damages claims

Assessing and quantifying damages can be challenging, particularly where losses depend on future profits, additional expenditure or a lost commercial opportunity. Early advice can help establish whether a claim is viable, identify the evidence needed to support it and assess whether a negotiated settlement may be preferable to litigation.

Before bringing or defending a claim, it is important to assess both liability and the potential damages. We can help evaluate the strengths and weaknesses of your position, quantify potential losses and explore practical options for resolving the dispute.