Seeking Damages for Breach of Contract
Breaches of commercial contracts can be potentially devastating to businesses regardless of scale, whether financially, reputationally, or both. In a recent and yet to be resolved case, the European Union has launched legal action against the pharmaceutical giant Astra Zeneca for breach of contract for only delivering around half of the COVID-19 vaccines it was supposed to in the first quarter of 2021.
Astra Zeneca is citing significant shipment and manufacturing delays, stating, “Following an unprecedented year of scientific discovery, very complex negotiations, and manufacturing challenges, our company is about to deliver almost 50m doses to European countries by the end of April, in line with our forecast…AstraZeneca has fully complied with the Advance Purchase Agreement with the European Commission and will strongly defend itself in court. We believe any litigation is without merit, and we welcome this opportunity to resolve this dispute as soon as possible”. In this article, we will explain how your business can seek damages for breach of contract.
The general rules of compensation for breach of contract
One of the fundamental principles of English law is that damages are only ever awarded following a breach of contract as a means of compensating the injured party for the loss they have suffered. In other words, damages are not awarded as a way of punishing the person or business which breached the contract, rather they are intended to put the injured party back into the same position they would have been if the breach did not occur.
Claiming for financial losses following a breach of contract
In many cases, where an award of damages is made, it is for financial loss such as costs, liability, or loss of profit. Claimants often decide to pay a third-party to ‘cure’ or reinstate their position following a breach of contract to ensure they are put back into the situation they would have been if the breach had not occurred. The cost of this can be then claimed in court. This may happen if, for example, a building contractor failed to complete all aspects of a contract.
In other cases, it may be that the injured party simply decides to live with the damage caused and not seek to rectify the matter. For this reason, damages for monetary loss come in two forms: 1) damages to cover the cost of curing the breach or 2) damages for loss suffered by the injured party if a cure is not sought.
The method of damages is typically determined by the test of reasonableness, which is based on the cost of cure vs cost of not curing (proportionality) and whether the claimant will effect a cure.