Remedies for breach of a contract

Remedies for Breach of Contract (Cambridge IGCSE/A‑Level 3.4)

1. Introduction

When a party fails to perform its contractual obligations, the innocent party may obtain a legal remedy that puts them in the position they would have occupied had the contract been performed. The syllabus groups remedies into:

• Common‑law remedies (damages) – 3.4.1
• Equitable remedies – 3.4.2 (including specific performance, injunctions, specific restitution and rescission)

All remedies are assessed against the policy goals of liability, justice, fairness and effectiveness.

2. Common‑Law Remedies – Damages (3.4.1)

2.1 Purpose & Nature

• Compensate the claimant for loss caused by the breach.
• Restore the claimant’s expectation position (the position they expected to be in) or, where that is impossible, their reliance position.
• Discretionary – courts will refuse awards that are illegal, excessive or contrary to public policy.

2.2 Categories of Loss

2.3 Measuring Damages – The Hadley v Baxendale Test

The court asks whether the loss falls within either limb of the test:

1. Loss that was reasonably foreseeable at the time of contracting (arising naturally from the breach); or
2. Loss that was within the parties’ contemplation as a probable result of the breach.

Only losses satisfying one limb are recoverable as *consequential* (special) damages.

2.4 Additional Limitations on Damages

• Causation: The loss must be caused by the breach, not by an intervening act.
• Remoteness: Must satisfy the Hadley test; remote or speculative losses are excluded.
• Mitigation: Claimant must take reasonable steps to avoid further loss; failure reduces the award.
• Illegality & Public Policy: No damages for contracts that are illegal or contrary to public policy.
• Penalty rule (liquidated damages): A clause is unenforceable if it is a penalty rather than a genuine pre‑estimate of loss.

2.5 Evaluation of Damages (Effectiveness & Fairness)

3. Equitable Remedies (3.4.2)

3.1 General Features

• Discretionary – granted only when damages are judged to be an inadequate remedy.
• Rooted in fairness; the claimant must come to court with clean hands.
• Remedies are tailored to the facts and may require ongoing supervision by the court.

3.2 Specific Performance

• What it is: An order compelling the breaching party to perform the contract exactly as agreed.
• Typical situations: Sale of land, unique goods, chattels with no ready market, or contracts for a particular piece of art.
• Key limitations:
  • Performance must be possible and practicable.
  • Contract terms must be sufficiently certain.
  • Personal services – generally unavailable (see Beswick v Beswick).
  • Mutuality of obligation – both parties must be capable of performance.
  • Public‑policy considerations may bar the order.
• Leading case: Beswick v Beswick [1968] AC 58 – specific performance denied for a contract of personal service.

3.3 Injunctions

• Prohibitory injunction: Orders a party to refrain from doing something that would breach the contract (e.g., breach of a non‑compete clause).
• Mandatory injunction: Requires a party to take positive steps to fulfil an obligation (e.g., removal of an unauthorised structure).
• When granted: Where damages would not provide an adequate remedy and the conduct is ongoing or future‑oriented.
• Key limitations:
  • Balance of convenience – the court weighs hardship to each side.
  • Clear right to enforce – claimant must show a proprietary or contractual right.
  • Supervisory burden – courts will not order an injunction that is impossible to supervise.
• Leading case: Co‑operative Insurance Society Ltd v Argyll Stores Ltd [1998] AC 1 – injunction denied where damages were sufficient.

3.4 Specific Restitution (Equitable Remedy)

• Definition: An order requiring the breaching party to return the benefit obtained under the contract, measured by the value of that benefit rather than the claimant’s loss.
• When appropriate: Void or voidable contracts, or where the claimant elects restitution instead of damages (e.g., breach of a confidentiality agreement).
• Key limitation: Claimant must prove the defendant received a *benefit* that would be unjustly retained.
• Leading case: Attorney General v Blake [2001] 1 AC 268 – specific restitution for breach of a publishing contract.

3.5 Rescission

• Purpose: Set the contract aside and restore the parties to their pre‑contract positions.
• Grounds (in breach context): Repudiatory breach that goes to the root of the contract.
• Defences / Limitations:
  • Affirmation – innocent party has accepted the breach.
  • Lapse of time – the right to rescind has expired.
  • Impossibility of restitution – parties cannot be returned to original positions.
• Leading case: Leaf v International Galleries [1950] 2 KB 86 – rescission for misdescription of a painting.

3.6 Evaluation of Equitable Remedies (Effectiveness & Fairness)

4. Interaction with Limitation Periods

Under the Limitation Act 1980 (England & Wales) a claim for breach of contract must be brought within six years of the date of breach. The limitation period applies equally to actions for damages, specific performance, injunctions, specific restitution and rescission. A claimant who delays may lose the right to any of these remedies, regardless of their merits.

5. Practical Checklist for Selecting a Remedy

1. Identify the nature of the loss
   • Financial (expectation or reliance) → consider damages.
   • Non‑pecuniary (loss of enjoyment, loss of chance) → assess availability of damages for non‑pecuniary loss.
2. Ask whether damages would fully compensate
   • If yes → claim the appropriate category of damages (including liquidated damages where a valid clause exists).
   • If no because the subject matter is unique or the loss is ongoing → move to equitable remedies.
3. Determine the most suitable equitable remedy
   • Unique goods or land → specific performance.
   • Ongoing or future breach (e.g., restrictive covenant) → injunction.
   • Benefit retained by the breaching party → specific restitution.
   • Fundamental breach that destroys the contract’s basis → rescission.
4. Check for limiting factors
   • Impossibility, lack of certainty, personal services (specific performance).
   • Clean‑hands, mutuality, balance of convenience (injunctions).
   • Affirmation, lapse of time, impossibility of restitution (rescission).
5. Confirm the claim is within the six‑year limitation period.

6. Leading Cases Summary

7. Summary

Remedies for breach of contract aim either to compensate the innocent party (damages) or to compel performance or restoration (equitable remedies). The choice depends on:

• The type and magnitude of loss (expectation, reliance, non‑pecuniary, loss of chance).
• Whether monetary compensation is adequate.
• The uniqueness of the subject matter or the need to prevent ongoing breach.
• Statutory and equitable limitations (causation, remoteness, mitigation, clean‑hands, penalty rule, public policy, limitation periods).

Understanding the strengths and weaknesses of each remedy, together with the leading authorities, equips students to evaluate contractual disputes critically and to argue effectively for the most appropriate relief.