A fundamental principle of contract law requires the parties to honour their agreement for their mutual benefit expecting to receive the agreed consideration. Any act that aims to breach the contract has consequences since the innocent party suffers loss and damage for which he is entitled to be compensated. Contract Law provides that when a contract has been broken the party who suffers by such a breach is entitled to receive compensation from the party who has broken the contract for any loss or damage caused by such a breach or which the parties knew, when they made the contract, to be likely to result from the breach of it.
However, such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. The manner to assess compensation corresponds to the amount that would restore the innocent party to the position he would have been if the contract was executed. In this respect, the reasonably foreseeable losses at the time the agreement was made should be taken into account as a result of the breach; the losses the innocent party may suffer in dealing with the consequences of the breach of the contract are not restored.
The options the innocent party has are either to insist on the execution of the contract claiming its specific performance plus compensation for damages caused due to the delay in the execution of the contract, or to consider that the breach committed by the party who broke the agreement has terminated the contract; in such a case, both parties are released from their respective obligation to execute the contract, however the innocent party is entitled to claim damages for the loss and damage he suffered.
The aforesaid were examined in a judgment issued by the Supreme Court on 23.1.2018 in two appeals whereby the court analyses the principles and the means for the assessment of damages due to breach of contract. As the court pointed out, there are three main categories in which the plaintiff can include his claim for damages. The first is the so-called ‘expectation interest’, which is based on the plaintiff’s expectation that the defendant will fulfil his contractual obligations and in the event that he does not, the damages will have to compensate him so he will be in the same position he would have been if the defendant fulfilled his promise. The second category concerns the so-called ‘reliance interest’ which includes the actions the plaintiff suffered as a result of the defendant not fulfilling his contractual obligations, causing the plaintiff to incur various costs which the defendant should remedy.
The purpose here is to put the plaintiff in the same position he was before the promise was given by the defendant. Finally, the plaintiff can claim the so-called ‘restitution interest’, in which the plaintiff does not wish to be compensated for the loss he has suffered but wishes to deprive the defendant of the profit he has made against him.
The Supreme Court in the above appeals disagreed with the judgment of the court of first instance regarding the assessment of damages, considering the court did not reach a simple finding that the appellant was entitled to compensation for breach of contract, although it correctly decided the respondent had illegally terminated the agreement. Furthermore, as mentioned by the Supreme Court, since the appellant’s version had been accepted, she was entitled to receive compensation by being awarded with that amount she would have received if the agreement had been executed. Damages in Contract Law aim at restoring the innocent party.
George Coucounis is a lawyer specialising in the Immovable Property Law, based in Larnaca, Tel: 24 818288, [email protected], www.coucounislaw.com