Understanding How Damages for Breach of Contract Are Calculated

The purpose of damages for breach of contract is to compensate the injured party for financial losses caused by the other party’s failure to fulfil their contractual obligations. The law does not generally award damages for non-financial factors like stress, inconvenience, or injury to feelings.

Instead, the courts focus on quantifiable losses the claimant has incurred, seeking to restore their financial position to what it would have been if the contract had been honoured.

Things to Keep in Mind When Calculating Damages

Recovering damages for breach of contract requires compliance with principles designed to ensure fairness and predictability for business owners. Understanding these principles is essential in assessing what losses can be recovered and how the court will approach the valuation of damages.  

The court will consider the following: 

  • Causation: The claimant must prove that the losses claimed were caused by the breach. 
  • Foreseeability: The losses claimed must have been reasonably foreseeable as a consequence of the breach. 
  • Mitigation: The claimant is required to take reasonable steps to minimise their losses and cannot recover damages for losses that could have been prevented by reasonable action. 
How Damages for Breach of Contract Are Calculated

Types of Recoverable Damages

English law limits recoverable damages primarily to financial losses caused by the breach, though several types of losses may arise depending on the nature of the contract and breach. 

  • Direct Financial Loss: This includes actual costs incurred due to the breach, such as paying for alternative goods or services, repair costs, fees for services not provided and any other out-of-pocket expenses. 
  • Loss of Profit: Profits that you would have earned had the contract been properly fulfilled can be claimed, provided these losses are proven and foreseeable. 
  • Cost of Cure: If you can hire a third party to remedy the breach (such as fixing defective work or delivering missing goods), these reasonable costs can be recovered. 
  • Loss of Opportunity: Although possible, these claims are difficult to prove given strict causation and foreseeability tests. 
  • Staff Time and Overheads: In some cases, businesses can claim for internal costs spent investigating the breach or dealing with its consequences, though this is challenging to substantiate. 

Assessment Date

Damages are usually assessed as of the date the breach occurred. This establishes the economic context for valuing losses and can affect the amount awarded based on market conditions or changes after the breach. 

Exclusion Clauses

Many business contracts include clauses limiting liability for certain losses or capping damages. Such clauses must be reasonable and legally valid, as some exclusions, like negligence causing personal injury, cannot be upheld under law. 

Talk To Us

If you are facing a contract breach or have questions about damages, you can book a free 30-minute meeting with one of our experienced litigation specialists. Early professional advice can clarify legal rights, help assess the strength of any claim, and outline available remedies. Taking this proactive step can be crucial in successfully resolving contractual disputes and securing fair compensation. 

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