Claiming Compensation in the UK – Assessment of Damages

Proving that the defendant has acted contrary to law is the first step in obtaining compensation in legal proceedings. After liability has been determined, the proceedings progress to an assessment of damages, where the quantum of money that ought to be paid by the defendant to the successful defendant is determined.

Establishing Liability

Legal disputes may be divided into two separate matters. When person or a company wishes to make claim for some breach of the law, this is a claim for liability. In the context of commercial law, this may mean making allegations of a breach of contract, negligence, claim under the Data Protection Act, copyright infringement or infringement other intellectual property right that are then pressed through the court system. These are issues of liability: Is the Claimant to the legal proceedings able to establish a cause of action against the defendant or defendants? If so, the matter then progress to matters of quantum of liability.

The question of compensation arises if and only if the question of liability has been determined in favour of the claimant to the legal proceedings. Under UK law, and subject to statutory damages provisions, this question of compensation is one of quantum. The claimant must be able to prove their loss in order to obtain an award for compensation. Again in the UK , this is awarded in the form of damages or an account of profits.

Awards of Damages in the Commercial Context

The calculation of sums to be awarded as damages was settled in the case Hadley v Baxendale 1854. 9 Exch. 341. The aim of making awards for damages are to place the claimant in the position they would have been if the wrong had not occurred. Regardless of the nature of the cause of action, a clamant to legal proceedings is able to recover their measurable losses as a consequence of establishing that the wrong was done in the first instance by the defendant.

The vast majority of awards of compensation in the form of damages as compensatory in nature. In the event that damage cannot be proved, then nominal damages will be awarded, which is about £100.

The measure of damages in commercial contracts is the same to that generally applied to awards of damages. The claimant is placed in the position they would have been in if the contract had been properly performed. All those losses flowing from the breach of contract are recoverable, so far as money can do it: Robinson v Harman (1848) 1 Exch 850. A comparison is made between the position of the claimant in light of the unperformed contract and the position they would have been in if the contract had been performed. The difference between the two positions is the sum to which the claimant should be compensated.

Categorisation of Damages

Damages for breach of contract may be categorised in three different ways. Expectation damages compensate the claimant for not receiving an benefit under a contract that they would have received if it had been properly performed. This category may also be referred to as damages for loss of bargain. Reliance damages are damages to compensate for losses suffered as a result of relying on the performance of the contract: if the contract is not performed some flow on benefit is lost by the claimant. These damages generally reflect expenditure spent on matters peripheral to the contract in question. Consequential damages are those damages or losses of profits that naturally arise from the breach of contract, whether it is a loss of opportunity, prospective profits, damage to property, liability to third parties or some other flow on effect from the failure to perform on the part of the defendant. Consequential damages are by far the most broad and therefore most common heads of damages claims.

Anticipatory Breaches

An anticipatory breach takes place when a party to contract repudiates the contract prior to the complete performance of their obligations under the contract. In such instances the claimant is entitled to be placed in the position they would have been of the contract had been fully performed, and recover the profits they otherwise would have made under the contract.

Where the claimant incurs costs as a result of the defendant’s failure to perform, the claimant is entitled to recover the costs for having a third party performing the work or the service. This is known as the cost of cure. The costs of seeing the contract through by another party therefore are recoverable, and may form a significant part of the damages award, except where the costs are disproportionate or unreasonable in the circumstances, performance has become impossible or the claimant has failed to mitigate its loss.

Assumptions in assessing awards for damages.

• The minimum performance is assumed by the defendant in making the assessment of damages: Thornett & Fehr v Yuills Ltd [1921] 1 KB 219.
• Where a discretion exists to perform a contract in a particular way, the extent of performance is construed in a reasonable way: Abrahams v Herbert Reiach Ltd [1922] 1 KB 477.
• The focus is on the victim of the breach of contract rather than the wrongdoer.
• Losses sustained by a claimant may not be compensated for twice (double dipping): Cullinane v British ‘Rema’ Manufacturing Co Ltd [1954] 1 QB 292.
• Damages may be agreed in a contract as ‘liquidated damages’, which are valid provided they are a genuine pre-estimate of the losses that would be incurred and provided the stipulated sum is not clearly more than the actual loss suffered: Kemble v Farren (1829) 6 Bing 141.