A contract is a binding agreement between parties that will govern their relationship by setting out what each party can and cannot do. Ideally, the parties would respect and perform their obligations under the contract. However, this is not always the case, and it is likely that at some point, most people will be faced with a situation in which someone breaches the terms of an agreement they have made.
A contract will often stipulate the remedies and damages that will be payable in certain situations by the party that has breached the contract. Where the damage is quantifiable, this is known as “liquidated damages”. However, when damages can’t be quantified, the issue must be resolved by agreement or by the courts.
Alternate Dispute Resolution
Litigation is often an expensive and lengthy process and avoiding it can save both parties a considerable amount of time and money. Over the past 20 years, there has been a marked increase in alternative dispute resolution. Some jurisdictions have introduced mandatory dispute resolution obligations and courts may also order parties to attempt to negotiate in good faith to save the resources of the courts and the parties. For this reason, we usually advise that parties engage in genuine negotiations with the other party. If these initial negotiations break down, they may also wish to consider the use of a mediator.
However, in circumstances where alternative dispute resolution methods are unable to resolve the dispute adequately, the parties may wish to enforce their rights through the courts.
In resolving contractual disputes, the courts may make a number of orders. These may include:
- Injunction – the offending party is forbidden from breaching the contract;
- Specific performance – the offending party must carry out the obligations imposed on them by the contract;
- Rescission – the offending party is required to return the innocent party to their original position; or
- Damages – the offending party pay the innocent party damages in relation to the breach.
The court will generally require the offending party to pay damages to the party that has been wronged if it is not feasible for the original obligations of the contract to be upheld. There are different methods used to calculate damages and it can be helpful to be aware of these different methods so that the value of any potential claim can be assessed.
The purpose of calculating damages in relation to ‘expectation loss’ is to return the innocent party back to the position they would have been in had the offending party not breached the contract.
In assessing the ‘expectation loss’, courts will generally compare the advantages that the innocent party would have received had the offending party not breached the contract against the benefits that the innocent party received as a result of the breach.
Loss of Chance
For the court to award damages for loss of chance, the innocent party will be required to prove that the breach of the offending party caused them to miss an opportunity to profit. When assessing potential damages, it is important to consider the likelihood that the innocent party would have received that profit, as the court will factor it into the amount of damages they award.
Reliance loss is awarded when the breach of the offending party caused the innocent party to waste their resources. It is important to note that this will only apply where those resources would not have been wasted had the offending party not breached the contract.
There are many ways to resolve disputes relating to a breach of contract. While it is recommended that parties try to resolve their disputes and seek compensation through alternative dispute resolution methods, such as mediation and negotiation, it is important that individuals are aware of their rights, and the damages they may be potentially entitled to. This understanding will grant a greater understanding of their position and allow them to engage in negotiations more confidently.
If you would like to discuss this article or your circumstances, you are invited to contact the team at Clinch Long Woodbridge Lawyers.
Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.