Damages

Damages may be either ‘liquidated damages’ or ‘unliquidated damages’. Liquidated damages arise where there is a clause in the contract (which is not considered as being penal) which provides for a stipulated amount to be recovered in the event of breach of the contract. In other words, this is where the parties have anticipated their respective loss which may accrue from a breach by the other party and have set out in the contract what they expect should be their award for such a breach.   Demurrage in a charter party is a typical example of liquidated damages. In the absence of a valid liquidated damages clause the court must assess the damages itself. Obviously the injured party will suggest to the court the amount which he considers to be suitable compensation for his loss, but there must be some impartial guidelines upon which the court can determine whether the claimed amount is in the circumstances realistic. It should be remembered at this point that the aim of all civil liability is to compensate the injured party and not to ‘punish’ the wrongdoer. Punishment and deterrents and retribution are solely within the province of Criminal Law and are not Civil Law issues in most countries. Normally the Court will assess damages on the basis of ‘expectation loss’ – loss of bargain/profit, which the injured party has suffered through the breach of the other party. Where the expectation loss cannot be measured due to the nature of the contract, then damages are awarded on the basis of ‘reliance loss’, i.e. where the injured party has not at that point suffered actual loss of profit or cannot show what the profit loss is. It is important to note that double recovery is not permitted, and it is expected that reliance loss is only to be assessed where expectation loss cannot be assessed. Thus it can be seen that the aim of damages in contract is to put the injured party (the plaintiff) into the position as if the contract had been performed satisfactorily. This will of course include ‘profit loss’.