Liquidated Damages and Penalty Clauses by Roger Halson

Author:Roger Halson [Halson, Roger]
Language: eng
Format: azw3
Publisher: OUP Oxford
Published: 2018-03-07T16:00:00+00:00

(2) Recovery of damages for otherwise unrecoverable loss

4.19 The principal judicial remedy for breach of contract103 is an award of unliquidated damages.104 Unliquidated damages are damages that are assessed by the court as appropriate to be paid to the victim of a breach of contract in respect of his or, exceptionally, others’ losses caused by that breach. Unliquidated damages for breach of contract generally seek to compensate the victim for his loss rather than to punish the wrongdoer for his conduct. In Farley v Skinner,105 Lord Clyde stated that: ‘damages should not be awarded, unless perhaps nominally, for the fact of a breach of contract distinct from the consequences of the breach’. This general compensatory aim106 has been said to be ‘a bedrock of our law’107 and means that, in the absence of provable loss, only nominal damages will be awarded.108 The assessment of compensatory damages may be regarded as a two-stage process; first, the prima facie measure is ascertained109 and, secondly, the potential effect of a number of limiting factors are considered, such as remoteness, mitigation, and contributory negligence.

4.20 From the above it can be seen that there are two distinct circumstances when unliquidated damages may be unavailable to a contractor who has in fact suffered loss as a result of a breach of contract. The first is where, for some reason, the party who has incurred a loss is unable to prove that fact to the required standard of proof.110 In order to succeed in an action for breach of contract, a claimant must establish liability upon the normal civil burden of proof, ie the balance of probabilities. By extension, it might be thought that the claimant’s right to recover substantial damages (where loss must be shown) was also dependent upon proof of loss to the same standard. However, as Lord Nicholls observes in Gregg v Scott:111 ‘the common law has drawn a distinction between proof of past facts and proof of future prospects’. A past event either did, or did not, occur and falls to be established in civil proceedings upon the usual balance of probabilities. Claims for wasted expenditure will fall within this category.112 However, where the loss being claimed requires an investigation of future events, a different approach is taken;113 ‘[p]roof of future possibilities is approached differently’.114 Damages are only recoverable if the item of loss claimed for can be proven with reasonable certainty.115 The policy behind the application of different burdens of proof in respect of past facts and future events is unclear. It is possible that the risk of exaggeration and falsification in relation to the latter is thought to justify the imposition of a higher standard of proof.116 An empirical study of the tourism industry produced evidence that contractors were often unable to pre-estimate in advance the likely impact upon them of the cancellation of their holiday.117

4.21 The second situation is where the claimant is able to prove the fact of loss to the required standard but the loss claimed is nonetheless irrecoverable.

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