This business briefing sets out the main remedies available to your business for breach of contract.

When does a breach of contract occur? A breach of contract occurs when a party to a contract fails to perform some or all of its obligations in the contract. It entitles the other party to claim damages for any loss it suffers. When a breach of contract is sufficiently serious (for example, if a key contractual term has been breached), the other party is entitled to treat itself as being discharged from further obligations under the contract, instead of or as well as, claiming damages.

Damages for breach of contract: The main remedy available to your business for breach of contract is an award of damages. In contract claims, damages can be claimed whenever a contract has been breached, even where there is no actual loss, although damages in these types of cases will be small. Damages in contract aim to put the injured party in the position they would have been in if the contract had been satisfactorily performed. Not all losses from a breach of contract will be recoverable (for example, some losses may be regarded as too remote to be recoverable).

Liquidated damages clauses: A liquidated damages clause pre-sets the damages recoverable for a specified breach of contract. Provisions for liquidated damages frequently appear in all sorts of commercial contracts, both in individually negotiated contracts and in standard terms of business. They are commonly found in contracts for construction, engineering and supply or sale of goods. If a contract contains a liquidated damages clause:

  • Your business must merely show that the relevant breach has occurred
  • Your business does not have to prove actual loss
  • The amount recoverable is not left for the court to decide, and
  • The agreed figure should be a genuine pre-estimate of the loss likely to be caused by the specified breach

Equitable remedies: Equitable remedies are awarded at the discretion of the court. An equitable remedy will normally only be granted where damages would be an inadequate remedy for your business.

Rectification: Rectification only applies in the case of written contracts. Its main purpose is to correct mistakes made in recording agreements. The courts can rectify a written agreement that does not reflect the true bargain between the parties. There is no limit to the amount of rearrangement or correction that the court may allow.

Rescission: is the setting aside of a contract. The parties are put back into the position in which they were before the contract was made. It may be available where a contract has been concluded as a result of:

  • Misrepresentation
  • Mistake
  • Duress
  • Undue influence

Specific performance: Specific performance is a decree by the court to compel a party to perform his contractual obligations. It is often ordered in building contracts.

The content of this business briefing is for general information only and does not constitute legal advice. It states the law as at February 2012. We recommend that specific professional advice is obtained on any particular matter. We do not accept responsibility for any loss arising as a result of the use of the information contained in this business briefing.