How Are Damages Calculated in the UK?

As a business owner looking to take another party to court, you should know how courts calculate damages. The potential to receive damages will likely be your priority for entering into court proceedings, especially in cases of breach of contract. However, the court may not always reflect the financial loss you have suffered in its calculation of damages. 

This article will explain some key points on how damages are calculated. It will also explain how you can take steps to make sure that your damages are not reduced.

What are Damages?

‘Damages’ is the legal terminology for financial compensation. A court will award damages to the successful part in a dispute. 

To receive contract damages, you must prove two elements. First, the other party must have breached a valid contract. Second, the breach must have caused you some form of loss, mainly financial. This will give rise to legal rights against the other party, which you can exercise through a claim for damages so that the other party can compensate you for your loss.

Contract damages follow a general rule. They must put you in the same position you would have been in if the other party had not breached their contractual obligations. 

As part of this assessment, however, the court will look at many further points, such as:

• lost profits;
• when the breach has occurred;
• any mental distress that you have suffered; and
• whether the injured party has mitigated its losses.

These factors are outlined in detail below.

Loss of Profits

In assessing your loss as a result of the defendant’s breach, the court will also look at any lost profits. 

For example, consider that you have a contract with another person to provide you electricity and they fail to do so. If this causes you to stop operating your business for a certain amount of time, you may claim the lost profits for that time. This will go into the calculation of general damages that you can claim from the other person. 

When the Breach Occurred

The first point to establish is when the breach has occurred. This is important because your losses will begin to accrue from then onwards. 

For example, if you are losing profits due to another person’s conduct, you can only claim that loss (in contract law) from when the other party has breached the contract. Any prior loss will not count towards the contract damages you can receive.

Mental Distress

In some cases, you can also claim for ‘loss of amenity.’ This is where you are given compensatory damages that reflect your disappointment or mental distress due to another person’s breach. 

However, you are typically only able to claim for loss of amenity damages if the contract you entered is specifically for your pleasure. This is worth keeping in mind, but it may be difficult to engage if you are suing the other person in your business capacity. 

Mitigation of Losses

As the injured party, you must mitigate against any potential future losses in a reasonable way. This means that you must take reasonable steps to prevent greater loss from happening to you. If you fail to do so, you will not be able to claim the amount of money you could have mitigated. 

For example, if you are suffering loss due to a water leak, you cannot let the water continue to leak on purpose with the view of claiming for all of the damage it causes to your property. 

What about Suing under Tort Law Damages?

You may also be able to sue the other party under tort law. This type of case does not require a contract but usually requires a breach of duty from one person to another. 

If you sue the other person in tort law, the court may order them to compensate you for all the loss you suffer due to their conduct. If you are electing between suing someone in tort or contract, it is a good idea to seek professional legal advice to maximise your damages.

Key Takeaways

You may want to sue another person or business at some point as a business owner. If you do, you should ensure you have a good idea of how courts calculate damages. As part of this, you should be aware of your own responsibility to mitigate against preventable future losses by taking reasonable steps. 

Finally, in this position, you should also consider whether you would prefer to build your case in tort law or contract law. If you have any questions about constructing a case or maximising damages, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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