There are two main ways of measuring loss of bargain.  The first is to assess the cost of obtaining substitute performance.  The second method is to work out the difference in value between the contracted or promised performance and the performance actually provided.

 

In the case of the sale of goods, where the breach consists of the seller’s failure to deliver those goods, the buyer is entitled to the cost of obtaining substitute goods which means that the measure of damages will be the difference between the contract price and the market price of the goods actually obtained.

 

This is the situation where no goods at all were delivered.  Where defective goods are supplied, and where the buyer has accepted those goods or has no right of rejection of the defective goods, the damages are assessed on the diminution in value.  That means that the assessment is the difference between the value of the goods supplied at the date of delivery and the value that those goods would have had at the time had they been delivered in their contracted rather than defective condition.  Various sections of the Goods Act and of the Australian Consumer Law underlie these entitlements.

 

How do the two ways of measuring expectation loss (cost of obtaining substitute performance and diminution in value) apply for contracts for the construction or repair of property?

 

In this case, the cost of obtaining substitute performance is the cost of having a substitute builder complete the building contract or rectify repairs.  The diminution in value is the difference between the actual value of the owner’s property and the value it would have had had the defendant builder completed the building contract in accordance with the National Construction Code and the statutory warranties in the domestic building contract or contractual warranties in the commercial contract.

 

Owners will be able to obtain damages under the substitute performance measure of damages even though they will be higher than the diminution in value method.  However, there are limits: where it would be unreasonable to carry out remedial work, the owner would be restricted to the diminution in value measure.  Loss of bargain damages also cover the loss of profit that a plaintiff can prove would be recoverable had the contract been properly performed by the defendant.  Likewise, the plaintiff will recover the expenditure it incurred in reliance upon the promise of defendant’s performance of the contract.

 

Loss of chance damages are another variety of loss of bargain damages.  Provided the plaintiff can show that an opportunity of some value has been lost as a result of the breach of contract, loss of bargain damages will be awarded but will be adjusted to reflect the fact that it is only the chance of obtaining the benefit that has been lost.

 

There will be some cases where a plaintiff cannot establish, on the balance of probabilities, that it has suffered any actual loss as a result of the defendant’s breach of contract.  The plaintiff may still be able to recover damages, however, if the court can be persuaded to award compensation to take into account a gain that the defendant had made as a result of the breach of contract.  An example is an account of profits arising from a breach of contractual intellectual property rights or restraint of trade rights.  In Australia, this is an equitable remedy which means that the plaintiff must not only establish a breach of contract but also a breach by the defendant of an equitable obligation such as would arise from the breach of an employment or license contract.  Another type of gain-based measure of damages which a plaintiff may take from a defendant is an amount representing the sum which the defendant would have had to have paid to obtain the plaintiff’s agreement to relax the obligation actually breached by the defendant.

 

There are limits on a plaintiff’s ability to recover loss of bargain damages.  Under Australian law, the court will ask:  was the breach of contract a cause of the loss in fact and, if so, is it appropriate for the defendant’s liability to extend to that loss?  The plaintiff may also have to establish that the chain of causation between the defendant’s act and the plaintiff’s loss was not broken by an intervening act of a third party or by an Act of God.

 

Furthermore, losses that are too remote are not recoverable.  A loss will not be too remote if it is a loss which arises naturally as a result of the breach of contract or, if it is one to which the plaintiff has a special susceptibility, the defendant’s knowledge of that susceptibility should have been within its contemplation at the time of entering into the contract.  Under these tests of remoteness, it is only the type rather than the extent of the loss that must have been in the contemplation of the parties at the time of making the contract.

 

Innocent parties have a duty to mitigate their losses.  Furthermore, if the plaintiff has acted in a way whereby it has contributed to its own loss by its own negligent conduct or by its own breach of contract, contributory negligence is a defence to an action for breach of contract but only where there is a breach of a contractual duty of care which is concurrent and co-extensive with a duty of care in tort.  In other words, the defendant will be able to rely upon the defence of contributory negligence to an action brought by the plaintiff for breach of contract provided the defendant can argue that the plaintiff owed to the defendant a concurrent and co-extensive duty of care in tort in respect of which the plaintiff is in breach.

 

Finally, exemplary damages are not available for a breach of contract.  Nor are aggravated damages.

 

An injunction is potentially available in respect of a breach of contract but only if the breach in question is one of a negative contractual stipulation.  An alternative solution would be for the plaintiff to take action against the defendant for anticipatory breach of contract.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.

 

For any further information concerning this article, readers are invited to contact Michael Pickering or Max Van der Garde of our office.

 

****

This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice. 

 

DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can get from De Marco Lawyers and other relevant experts.