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.
Claiming for a breach of contract relating to the sale of goods
If the breach involves a purchaser refusing to accept or pay for goods, the claimant can claim damages for the difference between the price they would have been paid and the lower price they will now get on the market. This does not apply if there is no available market or if there are other factors that mean they cannot sell the goods.
If the goods were not delivered as expected under a contract and the purchaser brings a claim for non-delivery, they can typically then claim for the difference between the contractual price and the current market price at the time when the goods were supposed to be delivered.
Claiming for non-financial losses
Another type of claim which may occur in the event of a breach of contract relates to other damages such as mental stress and loss of amenity. However, such claims are only available in very limited circumstances.In the case of Johnson v Gore Wood & Co , it was reasoned that “contract-breaking is treated as an incident of commercial life which players in the game are expected to meet with mental fortitude”.
How are losses quantified?
Calculating losses is typically done on a case by case basis, and there are little in the way of hard and fast rules. There are, however, some guiding principles that will determine how much you are able to claim in the event of a breach of contract. Specifically, as the claimant, you have to 1) prove your losses and 2) prove both your current position and the position you would have been in ‘but for’ the contractual breach. As such, you cannot simply claim damages that they would have incurred anyway.
The potential amount of any damages you are entitled to following a breach of contract requires careful consideration and expertise in commercial matters, hence why it is so important to engage a commercial law specialist to represent you. A proper calculation will take into account a range of factors, including the legal basis for a claim, an understanding of the claimant’s business (e.g. competitors, market position, and financial performance), and the evidence available. In some cases, it may be vital to draw on the expertise of a forensic accountant and industry experts to formulate a realistic claim for damages. Ultimately, it is this knowledge that makes the difference between no award being made, one which leads to a low award, and one which fully compensates you for your losses.
Guillaumes LLP Solicitors is a full-service law firm based in Weybridge, Surrey. We have a highly experienced commercial law team who can assist you with all matters relating to a breach of contract. To make an appointment, please call us on 01932 840 111.