Contract Damages and Remedies in Irish Law

That hierarchy is the shape a strong answer follows. Damages come first, because they are the common-law default. Everything else — specific performance, injunction, rectification, rescission — is equitable, discretionary and secondary, granted only where damages will not do the job.

The compensatory aim and the three heads of loss

The governing rule is Parke B's in Robinson v Harman Persuasive (Eng), endorsed by the High Court in Hickey v HSE Binding (IE) (Finlay Geoghegan J): a party who sustains loss by breach is, so far as money can do it, to be placed in the same situation as if the contract had been performed. That is the expectation interest — forward-looking, giving the plaintiff the benefit of the bargain rather than merely restoring it to the position it occupied before contracting.

There are three recognised heads, and the plaintiff elects between them subject to a strict bar on double recovery:

• Expectation loss — the profit performance would have produced.
• Reliance loss — wasted expenditure incurred in reliance on the contract.
• Restitutionary loss — return of a benefit conferred on the defendant, such as a prepayment.

The election is best seen in Anglia Television v Reed Eng. An actor pulled out of a television film at the last minute and the production was abandoned; profits on a film never made were unprovable, so Anglia claimed its wasted production expenditure instead, recovering even expenditure incurred before the contract was signed because it was within the parties' contemplation as likely to be wasted on breach. What it could not do was claim lost profit and wasted expenditure together, which would compensate the same loss twice.

Reliance damages have a ceiling of their own. They cannot put a plaintiff in a better position than performance would have, so where the contract was a losing one anyway the wasted expenditure flows from the plaintiff's own bad bargain rather than from the breach. The onus of proving that lies on the defendant.

Remoteness: the limbs of Hadley v Baxendale

Not every loss caused by a breach is recoverable. The foundational test is Hadley v Baxendale Eng, adopted in Ireland in Lennon v Talbot IE (Keane J), and it is conventionally broken into limbs: loss arising naturally, in the usual course of things, from the breach; loss reasonably supposed to have been in the contemplation of both parties at the time of contracting as the probable result of breach; and loss arising from special circumstances actually communicated to the defendant. In Hadley itself a mill shaft was delivered late and the mill's lost profits were irrecoverable: not a natural consequence, since a spare shaft could be assumed, and the special need had never been mentioned.

Victoria Laundry v Newman Industries [1949] 2 KB 528 Eng is the cleanest illustration of the split. The launderer recovered its ordinary lost profits from a late boiler, those being within the contemplation of anyone selling equipment to a laundry, but not the loss of an exceptionally lucrative Government dyeing contract of which the seller knew nothing.

The point routinely missed is that the relevant knowledge is knowledge at the time of contracting, not at the time of breach: a special exposure mentioned in passing, or only after the deal is struck, does not enlarge liability. Nor is remoteness a question of amount. Parsons v Uttley Ingham [1978] QB 791 Eng holds that once the kind of loss is contemplated — illness in pigs from defective feed — an unforeseeably large loss of that kind is still recoverable, so a loss bigger than expected and a loss of a different kind than expected are not the same objection.

Mitigation and the date of assessment

A plaintiff must take reasonable steps to mitigate; loss that could reasonably have been avoided is not recoverable. Strictly, mitigation is not a defence — as the Court of Appeal explained in Pagnell Ltd v OCE Ireland Ltd Binding (IE), a failure to mitigate normally goes only to quantum, abating the award rather than defeating the claim. The rare exception is a gross failure: in McCord v ESB Binding (IE) the plaintiff's refusal to sign a non-incriminating document was so gross that the Supreme Court awarded nothing, even though the disconnection was itself a breach.

The standard is reasonableness, and it is not an unduly harsh one, because it was the defendant who created the difficulty. It is judged on the circumstances as they appeared at the time rather than with hindsight, so a plaintiff need not accept a substitute arrangement on materially worse terms, nor embark on an expensive and uncertain course with no assurance of success. What the duty will not excuse is a refusal on principle to take a cheap step that would have avoided most of the loss. The courts also link mitigation to the apportionment in section 34(1) of the Civil Liability Act 1961.

Damages are normally measured at the date of breach, but that is a rule of convenience rather than an absolute one: a court may take account of supervening events known by the date of assessment which show that the loss would have been reduced or extinguished in any event.

When equity steps in

The gateway to the equitable remedies is the inadequacy of damages. Specific performance compels a party to perform, and is the usual remedy where the subject matter is unique — pre-eminently contracts for the sale of land, where no sum of money buys the purchaser the same thing. Ordinarily available goods can also qualify if they become critically scarce, so that no substitute can in practice be bought.

Three bars recur. Equity will not make an order requiring constant supervision, so an obligation to keep a service continuously in operation is not specifically enforced, although a clear one-off obligation of the same kind is. Contracts of personal service are almost never specifically enforced, since courts will not compel unwilling people to work together; an injunction enforcing a negative covenant may indirectly encourage performance, but it is refused where its practical effect is compulsion. Exceptionally, in Earley v HSE (No. 2) Binding (IE) the Court of Appeal granted an injunction restoring an employee's role where any other remedy would have been purely theoretical.

Third, the remedy is discretionary and never available as of right. The discretion is guided by settled factors: delay or laches; the plaintiff's own readiness and willingness to perform; hardship amounting to injustice, which must generally be external to the contract and exist at the time of contracting; mutuality and clean hands; and the possibility of performance, which is why an order is refused against a purchaser with no means of paying at all.

Related Contract notes: discharge and frustration · misrepresentation · all free Contract notes.