- November 9, 2023
A look at the Law on awarding damages
The principal remedy under common law for breach of contract is an award of damages, with the purpose of damages being to compensate the injured party for the loss suffered as a result of the breach, rather than (except for very limited circumstances) to punish the breaching party. This general rule, which can be traced back to the decision in the case of Robinson v Harman (1848) 1 Ex 850, is to place the claimant in the same position as if the contract had been performed, with the guiding principle being that of restitution. As was held by the Court in Robinson v Harman:
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
In this article, we explore various types of damages that a Court of law might award depending on the nature of the case. It is important for parties to be aware of the types of damages available in law and the circumstances upon which such damages might be awarded, so as not to pursue that which one is not entitled to, and perhaps more importantly, not to omit that which one is entitled to.
Special damages are awarded to compensate a claimant for actual out-of-pocket expenses and provable losses that have been incurred as a direct result of the defendant’s actions or behaviour. Special damages are amenable to precise monetary quantification and as such the claimant must be able to support their claim with compelling and accurate evidence of the losses sustained.
In Equity Bank Limited v Gerald Wang’ombe Thuni (2015) eKLR, the Court highlighted the importance of special damages being specifically pleaded and thereafter strictly proved before they can be awarded. This position was further buttressed by the Court in OkuluGondi v South Nyanza Sugar Company Limited (2018) eKLR, where it was held that “special damages must indeed be specifically pleaded and proved with a degree of certainty and particularity.”
General damages, or non-pecuniary losses, are those damages which cannot be mathematically assessed as at the date of the trial. These damages are not amenable to precise monetary quantification and are assessed by the Court, ordinarily guided by precedents of a similar nature.
It is noteworthy that general damages are ordinarily not recoverable in cases concerning breach of contract as highlighted in the Court of Appeal case of National Industrial Credit Bank Limited v Aquinas Francis Wasike & Another (2015) eKLR.
Further, the Court of Appeal has on numerous occasions held that allowing a claim for general damages in addition to quantified damages under a breach of contract would amount to duplication. In addition, where there has been a breach of contract but the innocent party has not sustained any actual damage therefrom, or fails to prove that he has, only nominal damages would be recoverable by the innocent party.
Expectation damages are a form of compensation awarded to the party harmed by a breach of contract for the loss of what was reasonably anticipated from the transaction that was not completed and are aimed at placing the innocent party in the position he would have been, had the breach not occurred.
Expectation damages are recoverable only where they can be calculated to a reasonable certainty, and where this is not possible, the injured party will only be able to recover nominal damages.
Typically, the issue of certainty arises in cases where the damages suffered are in the form of lost profits. The general rule regarding lost profits and certainty in calculating damages is that if the injured party is an established business, lost profits are not treated as speculative because they can be estimated from past profits. Therefore, an established business will generally recover its lost profits, based on reasonable estimates derived from previous records.
Consequential damages are intended to reimburse a claimant for indirect losses other than contractual loss. However, this head of damages is not as open ended as it seems; the standard of proof is higher than that of special damages, as the loss needs to have been foreseeable or communicated in advance.
The general rule with regard to consequential damages is that the breaching party either knew, or ought to have known, that the damages claimed would probably result from his or her breach of the contract. In the absence of such damages being foreseeable, they are only recoverable where the innocent party mentioned their special circumstances in advance of the breach as was held in Hadley v Baxendale (1854) ER 145.
As mentioned earlier, the general aim of awarding damages is compensation, and not punishment. However, there are certain instances where a Court might order the breaching party to pay punitive (also known as ‘exemplary’ or ‘aggravated’) damages to deter him or her from committing future breaches of the same kind. Such instances include where:
Duty to Mitigate
Even after having suffered breach of contract and loss arising from such breach, a plaintiff has a legal duty to mitigate the damages suffered, and not to the allow the damages, as it were, to “snowball into an avalanche.” If the plaintiff unreasonably fails to act so as tomitigate its loss, or acts unreasonably so as to increase its loss, the law treats those actions as having broken the chain of causation and measures damages as if the plaintiff had instead acted reasonably.
The law further recognizes that a failure to mitigate damages means that the level of damages recoverable by the plaintiff would be commensurately affected by the extent of that failure.
The burden of proving that the plaintiff failed to take all reasonable steps to minimise or avert loss falls on the defendant. As was held in the case of Lombard North Central PLC v Automobile World (UK) Limited (2010) EWCA Civ 20:
“…it is well recognised that the duty to mitigate is not a demanding one. Ex hypothesi, it is the party in breach which has placed the other party in a difficult situation. The burden of proof is therefore on the party in breach to demonstrate a failure to mitigate. The other party only has to do what is reasonable in the circumstances.”
In addition to a determination on the quantum of damages, the Court will often award interest on the damages awarded. Such interest may be pre-Judgment or post-Judgment, where the former entails interest accruing on the award from the date of injury or the time of filing the claim to the time of the award, while the latter is interest accruing on the award from the time of entering the award to the time of payment.
An award of interest is not always discretionary. The general rule is that the applicable rate should be sourced from the contract, and where the contract is silent on the applicable interest rate, the rate may be implied from trade usage. In some cases, the contract may be so extensive as to stipulate for default interest. Similarly, an award of compound and simple interest should derive from the contract. In other words, the rate on interest will only be discretionary if it is not provided for in the agreement, implied from trade usage, or prescribed by statute.