What are remedies for breach?

Contracts exist to document the intention and expected course of action between two or more parties. If the consequences of failing to meet some or all of these obligations, a party may wish to include a remedies for breach clause. This simply details the compensation that will be made available to the party incurring the loss.

Including this clause helps maintain the integrity of contractual agreements by ensuring each party is held accountable. Whilst it should it make it easier to settle disputes outside of court, it is not guaranteed, as parties can question whether the criteria of failure have been met. The Netherlands is quite unique in its view on this matter, as specific performance (as opposed to financial compensation or other) is the primary remedy for breach of contract, and the creditor is under no obligation to be satisfied with damages.

How parties decide to remedy one another varies on a case by case basis. The nature of the breach; specific circumstances of the case; other the legal provisions both all play a role. It is common for remedies to consist of either financial compensation (such as a lump sum) or non-financial solutions (like rectifying underperformance). Depending on what is most appropriate and desirable for both parties, these remedies can also be combined.

Factors affecting remedies for breach

There are several factors can influence which remedies are available and which are deemed appropriate in the case of a contractual breach:

1. Type of breach: Whether the breach is material (essential) or minor (non-essential) can determine which remedies are applied.

2. Extent of damages: The scale of the loss suffered by the injured party plays a role in determining the amount of any compensation.

3. Burden of proof: The injured party’s ability to prove the breach and the resulting damages is crucial.

4. Contractual provisions: Some clauses could provide predetermined remedies or exclude certain forms of compensation.

5. Legal limitations: As with all contracts, performance of the contract is dependent on legal soundness.

How can we determine appropriate remedies?

1. Compensatory damages: Financial compensation for direct losses and indirect damages caused by the breach.

2. Specific performance: A court order requiring the breaching party to fulfil their contractual obligations.

3. Rescission: Terminating the contract, thereby releasing both parties from further obligations.

4. Liquidated damages: A predetermined amount specified in the contract to be paid in the event of a breach.

5. Injunction: A temporary or permanent court order prohibiting certain actions or mandating specific actions.

Examples of remedies for breach

Below are some common remedies available in the event of a contract breach:

1. Compensatory damages: Financial compensation is one of the main ways to remedy failure to comply, and reimburses the injured party for (part of) the loss they have suffered due to the breach. This is mostly related to loss of revenue.

2. Specific performance: A court order requiring the breaching party to rectify the agreed-upon obligations as stipulated in the contract.

3. Rescission of the contract: The formal termination of the contract, releasing both parties from further obligations.

4. Liquidated damages: A pre-agreed amount to be paid in the event of a contract breach, as specified in a liquidated damages clause.

5. Injunction: A court order prohibiting the breaching party from undertaking certain actions or requiring them to undertake specific actions.

Conclusion

Documenting the remedies for breach can provide a contract with much-needed predictability and stability. Say a car manufacturer signs a supply agreement with a client, for the supply of a new vehicle. Perhaps this involves a lot of set-up costs and financial risk. The manufacturer may only be willing to accept the risk of early termination, or the project falling through, if they can rely on a financial remedy. By documenting these remedies, parties can effectively manage breaches and uphold the relationship.