Introduction
If you have a binding contract and the other party breaches a key term of that contract, you may be able to seek compensation. The right to this type of remedy is based on the premise that the other party agreed to perform certain obligations when they entered into the contract; and each failure to perform a primary obligation is a breach of the contract giving rise to a remedy to you as the aggrieved party. Of course, this also assumes the contract is valid and there are no vitiating factors that could leave the contract unenforceable.
At the outset, we note that it is important that you seek legal advice early on in any dispute to ensure that: your rights are protected; the right strategy is used to pursue any damages; and that any action that you take does not give rise to a counterclaim or the raising of any defences against you.
Proving your loss
When a contract is breached, most people will seek compensation, which falls under the class of remedies known as damages. Damages can briefly be defined as a “court-awarded sum of money that the Defendant is required to pay to the Plaintiff (you) to compensate the Plaintiff for the Defendant’s failure to carry out his or her obligations.” If you are seeking damages, it is critical that you are able to provide evidence that:
- Substantiates your claim that a breach of contract has occurred;
- Quantifies the loss you have suffered, or are likely to suffer, in order to assess the amount of damages you are entitled to; and
- Shows that, had the breach not occurred, you would have been ready, willing and able to perform your own obligations under the contract (this is usually implied but can be an issue in Court proceedings if it is raised by the Defendant).
The general rule at common law is that you (as the Plaintiff) can only recover damages for losses that you have suffered – noting that some exceptions may apply. If the amount of the damages is uncertain due to a lack of evidence, then, in general, the issue of damages will be resolved against the party who should have provided the evidence.
It is also important to note that a right to damages can be limited where such a right is excluded or limited by a carefully drafted exclusion clause that is incorporated into the contract.
If you are unable to prove your loss, it does not necessarily mean that your claim will fail. However, you may only be able to claim an award of nominal damages, rather than substantive damages.
So, what are nominal damages?
‘Nominal damages’ is a technical term which means you have not proven that you have suffered real and quantifiable loss, but rather that you are able to prove to the Court that your legal rights have been infringed. Whilst this does not entitle you to any real quantifiable damages (and the sum awarded to you will be a token amount), it does give you a right to the verdict of a judgement to affirm that your legal rights have been infringed.
Limits on the compensatory nature of damages?
The High Court case of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 confirmed that “where a party sustains loss by breach of a contract, he is, so far as money can do it, to be placed in the same position, with respect to damages, as if the contract had been performed”. The underling effect of this principle is to ensure that, where possible, the outcomes of the contract are fulfilled as if the contract had been duly performed.
A key point to note here, is that you (as the Plaintiff) are not entitled under an award of damages for breach of contract to be placed in a superior or better position to which you would have been in, had the contract been performed. Therefore, it is always important to ensure that you are able to quantify any loss or damage that you have suffered, and this consideration should be taken into account when you enter into terms under the contract. Make sure the consideration (or payment) being passed between the parties is clear and already quantified, or is at least able to be assessed and quantified if the agreement is breached.
Date for assessment of damages
If you are seeking to make a claim for damages based on a breach of contract, then you must file your claim with the respective Court or Tribunal within six (6) years from the date that the breach occurred (except in the Northern Territory).
This time period is extended if the contract is a contract set out in a Deed, in which case the limitation period in Victoria and South Australia is 15 years, and 12 years in all other Australian jurisdictions.
How Sharrock Pitman Legal can assist?
A contract is an integral element in most business relationships, setting out the obligations, responsibilities and rights of the parties, and binding them to act according to the details set out in the contract. Contracts are usually complex documents, and sometimes they can fall over.
Our experienced Disputes & Litigation team advises customers on how to pursue compensation claims and strategies to mitigate the risk of a counter claim. If you have a contract and are concerned about your rights or obligations, please contact our accredited specialists in Commercial Law.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Kevin Li is an Associate Lawyer in our Commercial Litigation team. He has an advisory and advocacy practice in the areas of Commercial Litigation, debt recovery, insolvency, liquidation, and shareholder, commercial and contractual disputes. Kevin can be contacted on (03) 8561 3315 or by email, kevin@sharrockpitman.com.au.
