Contract Remedies in English Law

Introduction

English law provides a range of remedies for breach of contract, designed to compensate the innocent party for the loss suffered as a result of the breach. The primary remedy is damages — a monetary award intended to place the claimant in the position they would have been in had the contract been performed. Where damages are inadequate, the court may grant equitable remedies, including specific performance and injunction. The law also recognises the claimant’s right to elect to terminate the contract for repudiatory breach.

Expectation Damages

The fundamental principle of contractual damages is that the claimant is entitled to be placed in the same position as if the contract had been performed — the expectation measure. In Robinson v Harman (1848), Parke B stated that “where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

The expectation measure may be calculated by reference to the difference between the value of the promised performance and the value of the performance actually received (the difference in value measure) or by reference to the cost of achieving the promised performance (the cost of cure measure). The court will apply the measure that is appropriate in the circumstances, generally preferring the cost of cure where the claimant has a legitimate interest in performance.

Reliance Damages

As an alternative to expectation damages, the claimant may elect to recover reliance damages — expenditure incurred in reliance on the contract that has been wasted as a result of the breach. Reliance damages place the claimant in the position they would have been in had the contract never been made. In Anglia Television Ltd v Reed (1972), the Court of Appeal awarded reliance damages where the claimant’s expectation loss was too uncertain to calculate.

The claimant may elect between expectation and reliance damages but cannot recover both. The reliance measure is subject to the limitation that the claimant cannot recover expenditure that would have been wasted even if the contract had been performed — the defendant may show that the claimant’s expenditure would not have been recouped from the contract.

Remoteness of Damage

The remoteness rules limit the recoverable damages to those losses that were within the reasonable contemplation of the parties at the time of contracting. The classic statement is contained in Hadley v Baxendale (1854), where the court held that damages are recoverable for loss arising naturally from the breach (the first limb) or such as may reasonably be supposed to have been in the contemplation of the parties at the time of contracting as the probable result of the breach (the second limb).

The modern approach was articulated by the House of Lords in The Achilleas (2008), where Lord Hoffmann introduced an assumption of responsibility test. The court must ask whether the contract-breaker assumed responsibility for the type of loss in question, having regard to the circumstances known to the parties at the time of contracting. This approach refines the Hadley v Baxendale test by requiring not only that the loss be foreseeable but that it be within the scope of the liability the defendant can fairly be taken to have accepted.

Mitigation

The claimant is under a duty to take reasonable steps to mitigate their loss following a breach of contract. The claimant cannot recover damages for losses that could have been avoided by taking reasonable steps. The burden of proving failure to mitigate lies on the defendant.

The standard of mitigation is not onerous: the claimant need not take steps that would involve undue risk, expense, or humiliation. In British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (1912), the House of Lords held that the claimant must act reasonably and that the reasonableness of the claimant’s conduct is to be judged in the light of the circumstances as they appeared to the claimant at the time.

Liquidated Damages and Penalties

The parties may agree in advance on the amount of damages payable in the event of breach — a liquidated damages clause. A liquidated damages clause is enforceable if it represents a genuine pre-estimate of loss and is not a penalty. The penalty rule, as restated by the Supreme Court in Cavendish Square Holding BV v Talal El Makdessi (2015), provides that a contractual provision is unenforceable as a penalty if it imposes a detriment on the contract-breaker that is out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

Specific Performance

Specific performance is an equitable remedy requiring the party in breach to perform their obligations under the contract. Specific performance is available only where damages are an inadequate remedy — for example, where the subject matter of the contract is unique, such as land or a rare chattel. Specific performance is a discretionary remedy and will be refused where it would cause severe hardship to the defendant, where constant supervision would be required, or where the contract involves personal services.

Injunctions

An injunction is an equitable order requiring a party to refrain from doing something (prohibitory injunction) or to do something (mandatory injunction). Injunctions may be granted to enforce negative covenants in contracts and to restrain threatened breaches. Where the contract contains an express negative stipulation, the court may enforce it by injunction even if the effect is indirectly to compel performance of a positive obligation.

Conclusion

The law of contract remedies in England balances the objective of compensating the innocent party for breach against the need for proportionality and certainty. The expectation measure, the rules on remoteness and mitigation, and the availability of equitable remedies provide a flexible framework that accommodates the diverse circumstances of contractual disputes while promoting the efficient allocation of risk.