Breach of Contract: No Harm Done?

Barry Riley

The general rule in relation to breach of contract claims is that a successful claimant will be awarded damages sufficient to put him in the position he would have been in had the contract been performed. Ordinarily, the damages will equate to the amount that the claimant has lost as a result of the defendant’s breach.

However, there will be cases when a claimant’s rights under contract have been breached but no financial loss has been suffered. In cases of this nature, the fact that no actual monetary loss has occurred does not mean that the injured party will not receive a remedy.

Often, the remedy sought would be specific performance (where the court insists that one party performs his part of the contract) or an injunction (where the court orders one party to do or refrain from doing a particular thing). However, given that these remedies can often impose a significant burden on the defendant, the court might not always be willing to grant them.

If the claimant has not suffered financial loss that can be recouped, but specific performance or an injunction would be disproportionately hard on the defendant, the court is in a difficult position as to what remedy the claimant should, in fact, receive.

The solution the court has found has been to order the defendant to pay to the claimant such sum of money as would seem a fair substitute for the refusal of an order for specific performance or injunctive relief.

The case, known as Wrotham Park, serves to illustrate this point. In Wrotham Park, the defendant had breached a restrictive covenant that required him not to build houses on a plot of land without the consent of the claimant. The claimant had not suffered any loss because the building of the houses did not cause any diminution in the value of his land but, clearly, the claimant’s rights had been infringed. The court refused to grant an injunction for the properties to be demolished because this would cause too great a hardship to the defendant. Instead, the court ordered the defendant to pay the claimant a sum of money that, had the claimant been consulted and had he responded reasonably, would have been accepted by him in exchange for relaxing the covenant.

Wrotham Park is an early case law example of the court looking into a breach of contract that has not caused any quantifiable loss and determining what sum of money should be paid to compensate the claimant. Though it is clear that the court won’t refuse financial compensation to the claimant purely because there has been no financial loss, there is no hard and fast rule for determining what the measure of damages would be.

Often, as in Wrotham Park, the court will take a “hypothetical negotiation” approach whereby it considers what sum of money the defendant would have needed to pay to a reasonable claimant to induce him to vary the contract such that the defendant would not be in breach by doing the particular act contemplated. Alternatively, it might consider what benefit the defendant has gained through its breach of contract and offer the claimant a fair share of that benefit.

Clearly, this is not a scientific formula but it does go some way to balancing the interests of the parties. The crucial message for anyone entering into contractual arrangements is that it would be unwise to take a “no harm done” attitude to breach of contract. If a breach has occurred, it could be irrelevant that the other party has not suffered quantifiable losses and the party at fault might still be required to pay up.

Barry Riley
briley@metcalfes.co.uk
DDI – 0117 9453 042

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