Can I Get Out of This Contract? Suing For Damages.
This is a question I get asked often. Let's say, you've hired a business to complete a task for you, but they don’t do a satisfactory job or they aren’t able to complete the work within the time you specified, what can you do? Can you sue for damages?
First - Try and Approach The Business.
In these types of situations, you always want to begin by voicing your concerns to the other party and see where some negotiating can get you.
Write down your discussion/s or send your concerns via a written form such as email. Often the best resolutions come from negotiating, so it’s a good place to start. If, after taking this step - you are unable to make any progress you can always get legal help. A letter from a lawyer is usually very persuasive; otherwise, the next step would be filing a breach with the courts.
What Actually Constitutes a Breach of Contract?
A breach of contract occurs when an agreement made between two or more parties has been broken. This includes not completing the task on time or as stated. A breach can be something such as a service not being delivered on time or can be incredibly complex such as the wording of specific clauses.
Most commonly, breaches that go through the court system are remedied through damages. Damages are compensatory in nature and are awarded to the plaintiff for their loss suffered. They are not designed to punish the defendant. There are four variations of damages that you could receive:
nominal
expectation
reliance
restitution
Nominal Damages
You would receive nominal damages when you are able to prove that a breach of contract has occurred but you are unable to establish any loss or damage.
The purpose behind nominal damages is to acknowledge that one party has infringed on the other party’s legal rights. In this scenario, you may only receive $1 in damages for your troubles because the purpose is to establish a legal wrongdoing as opposed to recouping costs. If you're after compensation with a higher monetary value then you need to establish the losses you incurred as a result of the breach of contract.
If you're unable to establish any loss that you have incurred - the cost of taking legal action would be greater than what you would get back.
Expectation Damages
The most common type of damages awarded are expectation damages. As the name suggests, these damages protect the expected revenue or income that the plaintiff would have received if the defendant delivered their side of the contract. However, there is the onus on the plaintiff to take action to mitigate their losses.
For example: you sign an agreement to deliver 1000 widgets to XYZ Company for $1,000. On the day prior to delivery XYZ Company cancels the contract - leaving you with 1000 widgets to sell. To mitigate your losses, you sell them at a cut price to another supplier for $250. Meaning you could potentially sue for $750 worth of damages.
Instead of the contract being fulfilled, the plaintiff will receive monetary compensation for losses they were able to successfully identify.
Reliance Damages
The plaintiff can be awarded reliance damages to recover money they have expended in performing their part of the contract. This is essentially any funds the plaintiff wasted on carrying out the contract due to the defendant’s breach.
For example, you spend $10,000 on the pre-order of new equipment as a result of a promise that someone will loan you the money. They renege on loaning the money - damages could be sought for $10,000.
Reliance damages will only be awarded in situations where expectation damages were not able to be established or if the compensation is inadequate. Keep in mind damages are designed to compensate the plaintiff, not to put them in a better position than if the contract was not performed.
Restitution Damages
In a situation where the plaintiff has already provided benefit to the defendant but the contract is deemed unenforceable then restitution damages may be awarded.
These sorts of damages are rarely used in Australia as the other types of damages are usually sufficient.
Whichever damages are used in a court of law, the rule is that the plaintiff cannot be awarded MORE THAN the loss that they have incurred in cause of the breach.
Five Ways to Avoid Contact Dispute:
Even better than ending up in a dispute is avoiding one in the first place. Here are five ways to potentially avoid contract disputes:
Contract Clarity: make sure any contract you enter into is clear and concise as to what each party is responsible for delivering. Set expectations from the get-go using plain English (i.e no legal jargon). Don't ever be afraid to put something in writing.
Follow The Contract: now that you have a clear contract in place - make sure each party honour's it including what part of the contract you are responsible for. If circumstances change, get an amended contract done.
Make Sure Your Contract is Legal. It goes without saying a contract cannot ask either party to perform illegal requirements. For example, you cannot ask an employee in their contract to forgo their legally entitled annual leave requirements. It wouldn't stand up in court.
Do Your Homework. Research the person or business you are about to enter into a contract with. Do they have a solid trading history? Have they been honest about their qualifications, history or skills?
Get a Second Set of Eyes. It always pays to have someone else review your contract before you sign it. They might see something you don't and having someone impartial to the agreement can cast a new light on what is being entered into.
Got a Question?
Being forewarned is being forearmed. If you have a contract being entered into, our lawyers at You Legal are experts in contract review and negotiation.
We can also advise on action to take should you have a concern regarding a current contract.