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The basic principles of contract
Quick reminder: in the law of contract “losses” and “damages are” different, though related things.
Losses are pecuniary misfortunes that you might suffer as a result of a breach of contract. They can be divided into:
- “Direct” losses, that are the natural and foreseeable consequence of breach of contract.
- “Indirect” or “consequential” losses, which are a more speculative nature.
Note that “loss of profit” and “loss of opportunity” are not judicially recognised categories of loss: they can be either direct — for example, foregone interest on a defaulted payment — or indirect — the winnings you would have got from putting that defaulted payment on a rank outsider who came good in the 2:35 at Kempton — but if in doubt (i.e., not a natural consequence of the breach) assume they will be indirect
Damages are the amounts a court orders a naughty counterparty to pay to an innocent to compensate for its loss of bargain (in a contract) or atone for its wrongdoing (in a tort or breach of trust). They may, or may not, be the same amount as the actual losses suffered:
- “General” damages compensate for direct losses.
- “Special” damages relate to indirect losses. They are rare in contracts, even when not specifically excluded which, in finance contracts, they usually will be.
- “Punitive” or “exemplary” damages do not compenstate for loss at all, but rather punish a wrongdoer for outrageous behaviour. These are not available under English contract law but may be awarded — extremely rarely — in tort or for breach of trust.
- There is also an “Account for profit”: an order to hand over profits made through the misuse of someone else’s physical or intellectual property. This remedy is not available for a simple breach of contract.
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The reasonably foreseeable direct result of a fellow’s breach of his contract. Do be contrasted with indirect, or consequential, losses. See the panel for our reminder about the difference between losses and damages.
See also