Types of Damages in Australian Contract Law

Introduction

When a party breaches a contract, the innocent party may be entitled to damages as a remedy. In Australian contract law, damages are generally compensatory in nature, meaning they are designed to place the wronged party in the position they would have been in had the contract been performed. They are not intended to punish the party in breach. Understanding the different types of damages available is essential for anyone involved in a contractual dispute.

Expectation Damages

Expectation damages are the most common form of remedy for breach of contract. They compensate the plaintiff for the loss of the benefit they would have received had the contract been properly performed. The court assesses the difference between the plaintiff's actual position following the breach (the breach position) and the position they would have been in had the contract been carried out (the non-breach position). The foundational principle, established in the English case Robinson v Harman (1848) and adopted in Australian courts, is that a party who suffers loss through a breach of contract should, so far as money allows, be placed in the same position as if the contract had been performed.

Expectation damages serve both economic and social purposes. From an economic standpoint, they protect the present value of a promise made under an enforceable contract. From a juristic standpoint, they reinforce acceptable commercial conduct and encourage parties to rely on contractual promises with confidence.

Reliance Damages

Where expectation damages cannot be established or awarded, a plaintiff may instead seek reliance damages. These cover losses reasonably incurred by the plaintiff in reliance on the contract being performed. The rationale is that the plaintiff acted on the basis of the defendant's promise and suffered actual expenditure as a result. The High Court in Commonwealth v Amann Aviation Pty Ltd (1991) confirmed that a plaintiff may recover expenditure reasonably incurred in reliance on a defendant's promise.

Nominal Damages

Nominal damages are awarded where a plaintiff can establish that a legal right has been infringed, but cannot prove any real or quantifiable loss. The award is symbolic rather than compensatory. As stated in the House of Lords decision Owners of the Steamship 'Mediana' v Owners of the 'Comet' (1900), nominal damages affirm that a legal right was breached, even where no substantial harm resulted.

Damages for Loss of Chance

Damages for loss of chance address situations where a breach of contract has deprived the plaintiff of an opportunity to obtain a benefit. The court considers the hypothetical position the plaintiff would have been in had the contract been performed, and what chances of benefit would have arisen from that performance.

Exemplary Damages

Exemplary damages cannot be awarded in Australian contract law. Because contract damages are compensatory rather than punitive, a plaintiff is not entitled to recover more than the amount necessary to put them in their expected position. Punishing the breaching party is not a recognised purpose of contractual remedies.

To learn more about any of the matters discussed here, or if you require legal assistance, please contact Chris Moshidis, Director and Principal Lawyer on +61 3 9521 7956 or chris@urbanlawyers.com.au.