EDITORIAL | LEGAL
DAMAGES FOR BREACH OF
CONTRACT – A QUICK GUIDE
The purpose of an award of damages is to
put the injured party in the position that
they would have been in had the contract
been performed. In building contracts,
damages mainly arise from defective work,
incomplete work and failure to complete
work on time.
BRYAN PICKARD
Greenhalgh Pickard
Solicitors and Accountants
W
hen a party breaches a contract
the innocent party has a right
to recover damages. This right
does not depend on any contract term. It is
a common law right. The right to damages
arises when there is a breach of the contract
not when the damage occurs. For example,
where a window is not watertight the actual
damage will not occur until it rains and water
enters the building. While there may not be
any damage until this happens, the right to
damages arises from when the window was
installed not when the damage occurred.
The recovery of damages requires proof of
the contract and of the breach. The fact that
damages may be difficult to assess does not
prevent it being claimed where there is a
breach of contract. Where there is no loss
or minimal loss, an innocent party can be
awarded nominal damages, for example, $2.
In general, parties may agree to exclude
or limit damages by terms in the contract.
However, in some contracts, legislation may
prohibit terms which exclude or limit liability.
For example, consumer contracts and terms
that exclude consumer guarantees implied
by the Australian Consumer Law.
The amount or quantum of damages in the
first instance will be the loss or damage
that arises naturally or the usual course of
things from the breach, for example, the
cost of making a window waterproof. It can
also extend to damage that can ordinarily or
reasonably be contemplated by the parties
at the time they entered into the contract,
for example, water damage in a building.
Where a party makes it known that there
are special circumstances before entering
into the contract this may also be included in
damages, such as loss of rent if the building
cannot be occupied. In building contracts,
the usual damages an innocent party may
recover is the cost of rectification of the
defective work. This may include demolition
and rebuilding if the work is reasonable and
necessary. They can also recover other costs
such as loss of rent, relocation costs and
consultant fees.
In very limited circumstances where
rectifying defective work is an unreasonable
course to adopt, an injured party may not
be able to recover the cost of rectifying the
defect. Instead, they may be able to recover
any loss of the value of the building and
where no loss in value, the loss of enjoyment
and/or inconvenience in using the building.
In building contracts, damages for defective
work are usually limited by terms requiring
a contractor to rectify defective work.
However, the failure of a contractor to do
this allows the other party to engage another
contractor to complete the work. If this work
costs more than the price of the contract
with the first contractor, the other party can
recover this cost as damages. The amount
of damages will be the cost of the work that
is reasonable and relevant to put the other
party in the same position as if the contract
had been carried out.
Where there has been a breach of contract,
the injured party must take reasonable
steps to minimise the effects of the breach.
For example, with a leaking window, the
owner has a duty to take reasonable steps
to minimise the effect of water entering
the building. Mitigation of damage not does
require a person to do what is unreasonable,
or may be a serious risk to their interests.
Nor are they under a duty to do what they
cannot afford.
In bringing a claim for damages there is a
once and for all rule. What this means is
that damages are awarded only once for
any cause of action, for past, present and
future losses flowing from the breach of
contract on which the action is taken. Once
damages have been awarded, you cannot
return to the court at a later time and ask for
additional damages for further losses that
may have occurred or been discovered.
Liquidated damages clauses are frequently
found in building contracts. They are
designed to avoid litigation about the sum
to be awarded in the event of default. To be
enforceable, a liquidated damages clause
must be a genuine pre-estimate of the loss
that would be caused by a particular breach.
However, where the amount specified is
more than a reasonable amount arising
from the loss, it is regard as a penalty and
unenforceable.
For more information, contact Greenhalgh Pickard Solicitors and Accountants on 07 5444 1022 or visit www.greenhalghpickard.com.au
16 Spring 2017