Remedies for Breach of Contract
What you can recover when a contract is broken in NSW: damages, liquidated damages, specific performance, injunctions, restitution, interest and costs.
Contract law basics / 5 min read
The main remedy for breach of contract is damages, which aim to put the innocent party in the position it would have been in had the contract been performed, subject to limits on remote losses and a duty to mitigate. In some cases a court can also order specific performance or an injunction, and money paid can sometimes be recovered through restitution.
What remedies are available for breach of contract?
Depending on the breach and the contract, the remedies can include:
Damages
compensation for loss caused by the breach.
Liquidated damages
a sum fixed in the contract as payable on a particular breach, provided it is not a penalty.
Specific performance
an order that a party actually do what it promised.
Injunction
an order that a party stop doing, or not do, something that would breach the contract.
Restitution
recovery of money paid, or payment for work done, where the basis for it has failed.
Interest and costs
added by the court to a judgment.
How are damages for breach of contract calculated?
Damages aim to place the innocent party, so far as money can, in the same situation as if the contract had been performed. The High Court applied that principle in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, and accepted that where lost profits are hard to prove, a party can instead be compensated for expenditure wasted in reliance on the contract. Damages compensate for loss. They are not meant to punish the party in breach.
Two limits apply:
Remoteness
A loss is recoverable if it arises naturally from the breach in the usual course of things, or if it was within the reasonable contemplation of both parties, when the contract was made, as a probable result of the breach. Unusual losses that flow from special circumstances are usually recoverable only if those circumstances were known to the party in breach when the contract was made.
Mitigation
The innocent party must take reasonable steps to reduce its loss. It cannot recover loss it could reasonably have avoided, but it can generally recover the reasonable cost of trying to mitigate.
What is the difference between liquidated damages and a penalty?
Many contracts fix an amount payable on a particular breach, such as a daily rate for late completion. That sum is enforceable as liquidated damages unless it is a penalty. In Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525, the High Court held that bank late payment fees were not penalties. The question is whether the amount is out of all proportion to the legitimate interests the clause protects, and those interests are not confined to the loss that could be recovered as damages. An amount that is extravagant or unconscionable by that measure is a penalty.
When will a court order specific performance or an injunction?
Specific performance is discretionary and is usually ordered only where damages would not be an adequate remedy, as in many contracts for the sale of land or unique items. Courts are generally reluctant to order it for contracts of personal service, or where performance would need ongoing supervision. An injunction can restrain a party from breaching a negative promise, such as a confidentiality clause. Both remedies are equitable, so delay by the party seeking them can count against it.
Can I get my money back instead of damages?
Sometimes. If you terminate for breach or repudiation after paying for performance you never received, you may be able to recover the money as restitution where the basis on which it was paid has failed. If the contract was induced by misrepresentation, rescission may undo it altogether. Damages protect the gain you expected, while restitution returns what you paid.
What does this look like in practice?
Suppose, hypothetically, a caterer cancels two days before an events company's conference, and the events company hires a replacement at a higher price. Its damages would usually include the extra cost of the replacement, because that puts it where it would have been had the original caterer performed. If it had simply cancelled the conference without looking for a replacement, it could struggle to recover its full lost profit, because it may have failed to mitigate. If the contract set a cancellation fee that was not a penalty, that fee could be recovered without proving the actual loss.
Frequently asked questions
Generally not for a commercial contract. Damages for disappointment or distress are usually limited to contracts whose very object is to provide enjoyment or relaxation, such as a holiday.
Usually in part.
Under section 100 of the Civil Procedure Act 2005 (NSW), a court may include interest in a judgment for the recovery of money from when the cause of action arose, although not for any period in which interest is already payable as of right, for example under the contract, and under section 101 interest generally runs on a judgment that remains unpaid. The usual costs order is that the unsuccessful party pays the successful party's costs, but the amount recovered is often less than the fees actually incurred.
Generally six years from the breach under section 14 of the Limitation Act 1969 (NSW), or 12 years for a deed under section 16. The breach of contract guide explains how the period runs.
Yes. Limitation of liability and exclusion clauses are common and are generally applied according to their terms, although courts read them carefully and some statutory consumer protections cannot be contracted out of.
Speak with Vamp Law about remedies for breach of contract
This guide is general information, not advice on your situation, and the remedy available depends on the contract, the breach, the facts and the documents. Vamp Law acts in contract disputes, and Kyra Pastrovic assesses what can realistically be recovered, including likely costs, before recommending a course of action. Make an enquiry or call +61 431 569 686.
More contract law basics
When the question has become a dispute, these are the pages on how Vamp Law acts in it.
Breach of Contract
What counts as a breach of contract in NSW, when a breach lets you end the contract, and what to do next if it does not.
Repudiation
What repudiation of a contract means in NSW, the choice it gives the innocent party, and the risk of terminating without a proper basis.
Misrepresentation
When a false statement made before a contract lets you undo the contract or claim compensation, under the general law and the Australian Consumer Law.
In a dispute?
Talk to us about your contract
This guide explains the law in general terms. For advice on your own contract, send us the documents and we will explain where you stand.