Disputes between parties to a commercial contract can give rise to a number of legal remedies. Which remedy is appropriate in each case depends on the nature of the contractual breach and the desired outcome.
What is the purpose of remedies in contract law?
The primary purpose of remedies in contract litigation is to ensure that parties fulfill their contractual obligations and to restore the injured party to the position they would have occupied had the contract been correctly performed. Contractual remedies can only benefit the wronged party to the extent they would have benefitted had the agreement been executed as anticipated.
A remedy is meant to right an injustice caused by a breach, or failure to perform, a contract. For example, in an agreement to purchase and sell some good or property, the buyer may owe the seller money if they fail to pay as required under the contract. If some time has passed since the transaction occurred, the buyer may owe the difference between the original sale price and its current worth to reflect the change in value over time.
What remedies are available for breach of contract in Canada?
There are three types of remedies the injured party can demand for breach of a commercial contract. These are:
- Restitution; and
- Specific performance.
What are damages?
The most common remedy for a commercial dispute is damages. Damages seek to compensate the injured party to put them in the same position they would have been had the contract been performed as agreed.
For certain sums to be recovered, those sums must have been foreseeable when the parties entered into the contract. These can be either direct losses or indirect losses. Direct losses flow directly from the breach of contract. By contrast, indirect or consequential losses arise from circumstances that the parties knew or should have known of when the agreement was entered into. Whether direct or indirect, the damages must have been foreseeable.
Potential claimants need to know their obligation to mitigate their losses when a breach of contract occurs. This means the injured party must take steps to ensure that the loss they experience due to the breach does not worsen because of their inaction.
The following terms are used to describe some potential losses that a damages award can cover:
Expectation losses are damages that compensate the injured party so they can be in the position they would have been in had the contract been performed as expected. For example, this can include remedial work or the difference in costs between the breaching party’s fee and a company that had to be hired to complete the job.
Reliance losses are damages claimed for future profits that may not be predictable. For these types of damages, the injured party recovers the expenses they took on in reliance that the contract would be performed. Note that you cannot recover both reliance and expectation losses.
Negotiating damages are uncommon in breach of contract claims but may be possible in limited circumstances. These damages compensate the injured party by the amount the defendant would have paid had the parties negotiated for the defendant’s release from contractual obligations before the breach. However, this amount must be measured in light of the economic value of the obligation that was breached.
What is restitution?
Restitution is a remedy that works to take back a gain that should not have been realized. Rather than looking at the injured party’s loss, restitution is concerned with what the breaching party gained. It arises in two ways:
- The defendant commits an unlawful act and realizes a gain. For example, the defendant breaches copyright and makes profits off of the use of the copyrighted material.
- The injured party demonstrates that the defendant was enriched by the plaintiff, and there is no reason at law for the defendant to continue to be enriched.
Restitution arises from the concept of “unjust enrichment.” Unjust enrichment is a legal doctrine that forbids people from benefiting at the expense of others. Restitution is not an available remedy if the breaching party has not been unjustly enriched.
What is specific performance?
Specific performance is a remedy that obliges the breaching party to follow through with their obligations under the contract. While damages are more common than specific performance, specific performance may be more appropriate in cases where monetary compensation cannot cover the loss endured.
Under the common law, there are rules for when a party can claim specific performance. For example, when a dispute pertains to an Agreement of Purchase and Sale for real estate, specific performance is only available if the injured party can demonstrate that the property was so unique that monetary compensation is an inappropriate remedy.
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