Remedies for Breach of Contract for SQE1
Contract Law > Remedies for Breach of Contract
Remedies are the ultimate payoff of any contract law question — if there is a breach, the examiner wants to know what the innocent party can recover. SQE1 tests your knowledge of the measure of damages, the rules on remoteness and mitigation, and the availability of equitable remedies. The fundamental aim of contractual damages is to put the innocent party in the position they would have been in had the contract been performed. Remedies follow directly from discharge of a contract and sit within the broader Contract Law framework.
What Are Remedies for Breach of Contract?
Candidates often lose marks on SQE1 by failing to apply the remoteness test or the duty to mitigate — two rules that examiners test repeatedly. These rules reduce the amount recoverable and candidates frequently overlook them, costing significant points.
When a party breaches a contract, the innocent party is entitled to a remedy. The primary remedy is damages (a monetary award). In certain circumstances, equitable remedies such as specific performance or injunctions may be available.
Key Principles for SQE1
Exam Tip
Remedies questions reward your ability to identify the correct measure of loss and apply the remoteness test. Always ask: (1) Which remedy is available? (2) How is it measured? (3) Does Hadley v Baxendale remoteness apply? (4) Has the innocent party mitigated? These four questions will guide you to the correct answer in nearly all contractual remedies scenarios.
Expectation (Loss of Bargain) Damages
Expectation damages is the primary measure. It puts the claimant in the position they would have been in if the contract had been performed (Robinson v Harman 1848).
This includes:
- Loss of profit — the profit the claimant would have made
- Cost of cure — the cost to fix or complete defective performance
- Reliance expenditure — provided it is part of the expectation loss
Example: If a supplier fails to deliver machinery, the buyer's expectation loss is the profit lost on the contract, or the cost to obtain the machinery elsewhere plus any profit loss.
Reliance Damages
Reliance damages is an alternative measure. It puts the claimant back in the position they were in before the contract was made, covering wasted expenditure (Anglia Television Ltd v Reed).
Critical rule: A claimant cannot recover both expectation and reliance damages for the same loss. The claimant must choose the more beneficial measure.
Example: A publisher spends £5,000 on advertising before a supplier fails to deliver. The publisher can recover this reliance loss, or alternatively claim for lost sales profit (expectation loss), but not both.
Remoteness — Hadley v Baxendale (1854)
Damages are recoverable only if the loss:
First Limb (Natural Result): The loss arises naturally from the breach in the ordinary course of things, or
Second Limb (Reasonable Contemplation): The loss was in the reasonable contemplation of both parties at the time of contracting as a probable result of the breach.
The Transfield Shipping Test (The Achilleas 2009): May further limit recovery based on whether the defendant assumed responsibility for the type of loss.
Quick Exam Reference
| Limb | Test | Example | |---|---|---| | First Limb | Natural loss in ordinary course | Late delivery → lost production profit | | Second Limb | Reasonable contemplation at time of contract | Special contract communicated to parties → loss if party informed | | Transfield Shipping | Assumption of responsibility | Loss type must be reasonably foreseeable |
Mitigation
The innocent party must take reasonable steps to minimise their loss (British Westinghouse Electric v Underground Electric Railways). Failure to mitigate reduces recoverable damages.
Key principle: The duty is to act reasonably, not to go to extraordinary lengths. The innocent party is not required to take unreasonably expensive steps, but reasonable steps to limit loss are compulsory.
Example: If a supplier fails to deliver, the buyer must seek alternative suppliers at reasonable cost. Sitting idle and accumulating losses breaches the duty to mitigate.
Causation
The breach must be the effective cause of the loss claimed. A break in the chain of causation prevents recovery.
Liquidated Damages vs. Penalties
Liquidated damages clause: A clause specifying damages payable on breach is enforceable if it is a genuine pre-estimate of loss.
Penalty clause: A clause is a penalty — and therefore unenforceable — if it imposes a detriment on the breaching party that is out of all proportion to the legitimate interest of the innocent party in enforcing the obligation (Cavendish Square Holding BV v Makdessi 2015).
Modern Test (Cavendish): The focus is on proportionality to legitimate interest, not just whether the stipulated sum exceeds actual loss.
Specific Performance
Specific performance is an equitable remedy — the court orders the breaching party to perform their obligations. Available only where:
- Damages are inadequate (e.g., sale of unique goods or land)
- Not available for contracts of personal service — the court cannot force someone to work
- Discretionary — the court may refuse even if the conditions are met
Injunctions
Injunctions are equitable remedies — the court orders a party to do something (mandatory injunction) or to refrain from doing something (prohibitory injunction). Both are subject to the court's discretion.
How This Appears in SQE1 Questions
SQE1 questions present a breach and ask you to:
- Calculate or identify the correct remedy
- Apply Hadley v Baxendale — was the loss in the reasonable contemplation of the parties?
- Remember the duty to mitigate — did the innocent party take reasonable steps?
- Determine if equitable remedies are available — are damages inadequate?
- Apply Cavendish to liquidated damages clauses — is the amount proportionate to legitimate interest?
This is one of the most commonly tested areas in SQE1, with examiners expecting you to apply both the remoteness test and mitigation rules in combination.
Common traps:
- Failing to apply the remoteness test and assuming all consequential losses are recoverable
- Overlooking mitigation — the innocent party cannot sit back and accumulate losses
- Awarding specific performance without first considering whether damages would be adequate
Common Mistakes Students Make
- Ignoring the remoteness test — assuming all consequential losses are recoverable without checking Hadley v Baxendale
- Forgetting the duty to mitigate — the innocent party cannot sit back and let losses accumulate
- Awarding specific performance without considering adequacy of damages — specific performance is discretionary and exceptional
- Confusing the Cavendish test for penalties — focus on proportionality to legitimate interest, not just the difference between stipulated and actual loss
- Claiming both expectation and reliance damages for the same loss — must choose one
Want to test your understanding of remedies? Try a few SQE1-style questions below before moving on.
Quick Summary
- Expectation damages: Primary measure — puts the claimant in the position they would have been in if the contract was performed.
- Reliance damages: Alternative measure — covers wasted expenditure. Cannot be claimed alongside expectation damages for the same loss.
- Hadley v Baxendale remoteness test: Loss recoverable if it arises naturally (first limb) or was in reasonable contemplation of both parties (second limb).
- Mitigation: The innocent party must take reasonable steps to minimise loss.
- Liquidated damages: Enforceable if a genuine pre-estimate of loss; unenforceable if out of all proportion to legitimate interest (Cavendish).
- Specific performance: Equitable remedy; available only where damages are inadequate; not available for personal service.
- Injunctions: Equitable remedies; discretionary; available where damages cannot compensate.
Want to test this now? Try a few SQE1-style questions below before moving on.
Test Yourself
Test yourself
Quick check questions based on this article.
Question 1
Scenario
A bakery contracted with a specialist oven manufacturer to purchase and install a commercial oven for £25,000. The contract specified that installation would be completed by 1 March. The bakery informed the manufacturer at the time of contracting that it had secured a major supply contract with a supermarket chain, commencing on 5 March, which depended on the new oven being operational. The manufacturer failed to complete installation until 20 March. As a result, the bakery was unable to fulfil the supermarket contract and the supermarket terminated the supply agreement. The bakery lost profits of £40,000 under the supermarket contract. The bakery also incurred additional costs of £2,000 for temporary equipment hire during the delay. A neighbouring business owner had offered to lend the bakery a portable oven at no cost, but the bakery declined on the basis that it would be insufficient for the supermarket order. The bakery had not checked whether the manufacturer had a track record of meeting installation deadlines. The manufacturer's delay was caused by a shortage of a specialist component from its own supplier. The bakery's business rates during the delay period were £500 per month. The bakery now seeks to recover damages from the manufacturer.
Which heads of loss is the bakery most likely to recover?
Question 2
Scenario
A manufacturer enters into a contract with a retailer to supply 1,000 units of a specialist electronic component at £50 per unit, for delivery by 1 June. The retailer has a separate contract with a technology company to supply the components at £80 per unit, with a delivery date of 15 June. At the time of contracting, the manufacturer was not informed of the retailer's onward sale to the technology company. The manufacturer fails to deliver any components by 1 June due to a production error. The retailer immediately seeks alternative components from another supplier but can only source them at £70 per unit. The retailer purchases 1,000 units from the alternative supplier on 3 June at £70 per unit and arranges expedited delivery. The expedited delivery costs the retailer an additional £2,000. Despite reasonable efforts, the alternative components arrive on 18 June, three days after the retailer's contractual delivery date to the technology company. The technology company terminates its contract with the retailer and claims £5,000 in damages from the retailer for late delivery. The retailer has recently invested in new warehouse facilities, which are unrelated to either contract. The retailer now brings a claim against the manufacturer for breach of contract.
Which of the following best describes the damages the retailer is likely to recover from the manufacturer?
Question 3
Scenario
A bakery contracts with an oven manufacturer for the purchase and installation of a commercial oven for £12,000. The oven is delivered and installed, but it consistently underperforms, producing only 60% of the output specified in the contract. The bakery’s usual daily production requires the oven to operate at full capacity. The bakery loses 40% of its daily output for six weeks while a replacement oven is sourced and installed. The bakery’s average daily revenue from products requiring the oven is £1,000, and its net profit margin is 30%. The bakery operates six days per week. The replacement oven costs £13,500 from another manufacturer. The bakery returns the defective oven to the original manufacturer. The bakery also incurs £500 in costs disconnecting the defective oven and preparing the kitchen for the replacement installation. The bakery owner has been baking for twenty years and has a loyal customer base. The bakery recently started offering online ordering. The oven manufacturer knew the oven was for a commercial bakery.
Which of the following best describes the damages the bakery is likely to recover from the oven manufacturer?
Practice with full exam-style questions
Related Topics
- SQE1 Contract Law: Complete Guide
- Formation of a Contract for SQE1
- Terms of a Contract for SQE1
- Discharge of a Contract for SQE1
Practise Remedies For Breach Of Contract Questions for SQE1
Want to solidify your knowledge? ActusPrep provides realistic SQE1 questions tailored to this topic.
👉 Try our free demo: https://actusprep.com/demo 👉 View plans and pricing: https://actusprep.com/pricing