3.4 - Contract remedies and termination

Remedy Map And Exam Issue

A contract remedy answer starts after a legal problem has arisen. The question is not just "was there a breach?" but "what legal consequence follows from that breach or voidable contract?"

The topic covers five remedy areas:

The first exam skill is classification. Damages are the normal remedy for breach of contract. Specific performance and rescission are equitable and discretionary. Termination for breach is not the same as rescission: termination ends future obligations because of a serious breach; rescission sets aside a voidable contract as if it had not been made, so far as restoration is possible.

This distinction matters because AQA examiners have identified misuse of "rescission" as a common error. Do not use rescission as a general word for walking away from a contract. If the facts are about a refusal to perform a core term, the issue is likely to be repudiatory breach and termination. If the facts are about misrepresentation or another vitiating factor, rescission may be relevant.

Use this issue order in a scenario:

1. Identify the breach or vitiating factor.
2. Decide whether the claimant wants money, performance, setting aside, or termination.
3. Apply the elements of the chosen remedy.
4. Check legal limits, especially remoteness, mitigation and equitable discretion.
5. Reach a calibrated conclusion on likely remedy.

Common confusion: a successful claimant does not automatically receive every remedy. The court must be able to connect the remedy to the legal wrong, the type of loss and the limits on that remedy.

Compensatory Damages And Loss

Damages for breach of contract are compensatory. The law does not normally punish the defendant for breaking the contract. It aims to compensate the claimant for legally recoverable loss caused by the failure to perform the bargain.

In a sale of goods or services, this may be calculated by comparing the contract price with the market price, the cost of substitute performance, or the profit that performance would probably have produced.

Sometimes the claimant frames loss as reliance loss.

It is especially useful where the value of the expected profit is difficult to prove. The limit is important: reliance damages should not place the claimant in a better position than proper performance would have done. If the contract would have been loss-making, the claimant cannot use reliance loss to escape that bargain.

Other recoverable losses may include consequential financial loss or a loss of chance. Chaplin v Hicks is useful authority for the idea that the loss of a real and measurable chance can be compensable even though the final outcome was uncertain. The legal point is not that every hope has value. The claimant must show a substantial chance lost by the breach, not a purely speculative possibility.

If there is breach but no provable substantial loss, the claimant may receive only nominal damages. That still recognises that a right was breached, but it gives little practical compensation.

Use this table to classify loss:

Common confusion: do not write "damages means the claimant gets their money back" without identifying the basis of loss. Returning money may be right in some cases, but damages for breach usually ask what performance would have been worth, what expenditure was wasted, or what chance was lost.

Causation Remoteness And Mitigation

Damages are filtered through causation, remoteness and mitigation. These rules prevent a breach from becoming a blank cheque.

Causation asks whether the breach caused the loss. At a basic factual level, ask whether the loss would have happened but for the breach. Then ask whether the chain of causation is still legally intact. If the loss was caused by an independent later event, the defendant may not be liable for it.

Remoteness asks whether the loss is too remote. Hadley v Baxendale provides the core contract rule.

The two limbs work like this:

Victoria Laundry v Newman Industries illustrates the distinction. Delay in delivering a boiler made ordinary lost profits recoverable, but not exceptional profits from a particularly lucrative dyeing contract that had not been sufficiently communicated. Use it as a legal tool: identify whether the defendant knew the special risk at the time of contracting.

However, the claimant does not have to do everything possible, accept unreasonable risks, or act against legitimate commercial interests. The standard is reasonableness, not perfection.

Apply the filters in this order:

1. Identify the specific loss claimed.
2. Ask whether the breach factually caused it.
3. Ask whether the loss is ordinary or special under remoteness.
4. Ask whether the claimant acted reasonably after breach.
5. State which part of the damages claim is likely recoverable.

Common confusion: remoteness is judged by what was naturally arising or reasonably contemplated at the time of contract, not by everything that looks foreseeable after the breach has happened. Mitigation is judged after breach, and asks whether the claimant's response was reasonable.

Specific Performance

Specific performance is not the normal remedy. The normal remedy for breach is damages.

The operational test is:

The strongest cases for specific performance involve unique subject matter, such as land, rare goods or something that cannot be bought easily on the open market. If the claimant can obtain an adequate substitute and be compensated for the difference in price, damages are usually adequate.

AQA materials also emphasise the personal services boundary. If the contract is for artistic work or personal services, specific performance is unlikely because the court avoids forcing people into continuing personal performance and because supervision may be impractical. Page One Records v Britton is useful as an illustration of judicial reluctance where equitable relief would effectively compel a continuing personal working relationship.

Specific performance is discretionary. Even where damages are inadequate, the court may refuse the order if performance would cause disproportionate hardship, the claimant delayed too long, the claimant has not performed their side, or the order would be too uncertain to enforce.

Common confusion: do not say that specific performance is available whenever the claimant really wants the promised thing. The legal question is whether damages are inadequate and whether equity should order performance.