[2009] UKPC 45
Maximising your recovery - a different approach to the assessment of damages
for breach of contract
Article by Macfarlanes LLP
The normal rule is that damages for breach of contract are measured by
reference to the innocent party's financial loss. As a result, an inability
to prove a substantial financial loss can severely limit the scope for
a party to recover adequate compensation for what it considers to be a
flagrant breach of contract. It may mean that it is not worth bringing
a claim at all, despite the fact that the wrongdoer has made a significant
profit out of its own breach.
However, it may be possible, as clarified in the recent Pell Frischman
case, for the innocent party to ask the court to ascertain the reasonable
cost of a release from the contractual obligation that has been breached
and to award damages on that basis instead of trying to compensate the
innocent party for the position it should have been in had the contract
been properly performed. The value of this release is calculated by reference
to a hypothetical negotiation between the parties. This process will take
into account any benefit the wrongdoer receives, or expects to receive,
from its breach and can result in an award of damages that is significantly
larger than the financial losses actually suffered by the innocent party.
This type of damages has been given a number of names, including gain-based
damages, Wrotham Park damages (after a case of that name),
negotiating damages and (wrongly) restitutionary damages. This eBulletin
uses the term negotiating damages because this most accurately reflects
the basis on which the damages are awarded and calculated.
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