This paper assesses the circumstances in which damages may be awarded for “loss of bargain” upon termination of a contract for breach. In particular, it considers the extent to which such damages are, and should be, available for “breach of condition”. The central argument is that, in such cases, they are based on the agreement of the parties and, provided such agreement is clearly established, it should be enforced by the courts.
It is axiomatic that any breach of contract entitles the claimant to an award of damages to compensate for loss which arises as a result of the breach. What is different about so-called “loss of bargain” damages is that they are awarded for a breach, or breaches, which will never in fact
be committed. By way of introduction, a simple hypothetical example will suffice. C and D enter into a contract for an initial term of five years under which C provides D with a service. D is to pay a monthly fee to C. A year into the contract D fails to pay successive monthly instalments and C terminates the contract. What does C recover in damages? He is certainly entitled to any loss flowing from not having received the three instalments.1
If he is entitled to loss of bargain damages, C will also recover what is necessary to put him in the same position as if the remainder of the contract had run its full course. This will amount to the recovery of all future instalments, less the costs C would have incurred to fulfil his obligations. There may need to be an adjustment for interest2
and C will be under a duty to mitigate; having been released from the contract with D, he must take reasonable steps to secure a substitute contract in the market. As the reference to the recovery of “future” instalments indicates, loss of bargain damages are assessed on an anticipatory basis. According to Lord Diplock:3