Summary
- Quantum is the stage at which a court assesses the monetary value of damages owed to the winning party in a contract dispute.
- Where no pre-agreed damages clause exists, courts typically award expectation damages to restore the innocent party to the position they would have been in had the contract been performed.
- Businesses should be aware of their duty to mitigate loss and the six-year limitation period for bringing a damages claim from the date of breach.
- This article is a plain-English guide to quantum and contract damages for Australian business owners involved in or anticipating a commercial dispute.
- It has been prepared by LegalVision, a commercial law firm that specialises in advising clients on commercial disputes and contract law.
Tips for Businesses
Include a liquidated damages clause in contracts to avoid uncertainty at the quantum stage. Keep records of all costs and lost profits resulting from a breach. Act promptly to mitigate your loss, as courts will not award damages for losses you could reasonably have prevented.
You should be aware of the quantum stage of a claim in the event your business is involved in a dispute. Quantum refers to the monetary value the judge assigns to the loss you have suffered. In other words, quantum is the measure of how much the law values your loss. English contract law measures damages in a few different ways, so you may find it helpful to understand what is and is not recoverable. This article will explain what quantum is, and it will elaborate on how a court assesses the amount it will award the injured party.
What is the Quantum Stage?
Quantum (sometimes called quantum meruit) is the stage at which a court will assess how much money is to be awarded. The court assesses quantum after it has ruled on the merits of the claim. You have to win to move onto the quantum stage. Even if you win a case in court, the dispute will not always require an assessment on quantum. In certain instances, the parties will agree to a specified sum based on the terms of the contract. This is usually referred to as an ‘action for the agreed sum’. In these instances, the contract will usually specify the amount you can recover.
For example, you may have a clause within your contract stating that the defaulting party will owe the other £10,000. If this clause is in your contract, the court will not need to assess quantum. All it needs to do is determine that the other party is in breach.
Similarly, you may have a liquidated damages clause in your contract. This is common in construction contracts, and it is usually a pre-agreed sum to be paid in the event that the work by the contractor is not completed by the specified completion date.
How is Quantum Measured?
Where the contract does not have a liquidated damages clause or an action for an agreed sum is not relevant, the court decides quantum based on the laws of contract damages.
There are several ways to measure damages. The general rule is that damages should put the innocent party back in the position they would have been if the contract been fulfilled. This is sometimes also called ‘expectation damages’. The award will put you in the same position you would have expected to have been in.
Generally, you can claim for the monetary loss that you have suffered. This will include costs you incurred and any profits you did not obtain as a direct consequence of the breach. This amount has to be a reasonable sum.
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From Which Point is Quantum Assessed?
The general rule is that damages begin at the point the other party breached their obligations. This is important, because you cannot recover damages after six years from the date of breach.
However, you cannot recover damages for loss that the law expects you to have reasonably mitigated against. For example, imagine that you have a broken water pipe which floods your house as a result of negligent work. You cannot simply let the water continue to damage your property then claim for that damage. Instead, the law assumes you should have stopped that damage from happening (for example, by hiring a contractor to fix the pipes). Of course, you can recover any costs you incur to stop the loss from getting worse.
What Happens if You Cannot Prove Your Loss?
To recover damages, you must prove your loss with evidence. A court will not simply take your word for it.
You will need to show documents like invoices, contracts, financial records, or expert reports. The stronger your evidence, the easier it is for the court to calculate what you are owed.
If you cannot prove a specific dollar amount, the court may award only nominal damages. This means you win the case but receive very little money.
This is why keeping clear business records matters. If a dispute arises, your records become your evidence.
Under Australian law, the burden of proof sits with you as the claimant. You must show, on the balance of probabilities, that the breach caused your loss and that your claimed amount is reasonable.
Other Ways of Assessing Quantum?
Although the general rule is that damages operate as monetary compensation, there are some exceptions. A party could, for example, receive:
- negotiating damages;
- nominal damages;
- punitive damages; or
- restitutionary damages.
Although these contract remedies are available in theory, they are very rarely used and reserved for exceptional situations. If you are taking your case to court, your lawyers may be able to advise you as to whether you have a claim under these less practical remedies.
On the whole, provided that you have a binding contract, you will have contract remedies available to you against the defendant. You will typically be given a reasonable value as monetary compensation for the loss you have suffered. This is all assessed by a court at the quantum stage, and this will happen if you do not have a pre-agreed damages sum within your contract.
Key Takeaways
As a business entering into a dispute, it is important to understand the quantum stage of your claim. This is where a court will assess the monetary compensation that you are entitled to. If you have a pre-agreed damages clause in your contract, then this will apply instead. If you do not, however, then a court will likely award damages based on what your position would have been had the other party fulfilled their obligations.
In calculating expectation damages, a court will also typically look at the costs incurred and any lost profits.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced disputes lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is quantum?
Quantum refers to the process of assessing damages in a court case.
What is a binding contract?
A binding contract is usually a formal agreement and requires an offer and acceptance, valid consideration, and an intention to create legal relations.
What is expectation damages?
Expectation damages put the innocent party in the position they would have been in had the contract been fulfilled, covering costs incurred and lost profits.
What is a liquidated damages clause?
A liquidated damages clause is a pre-agreed sum payable upon breach, commonly used in construction contracts.
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