Introduction
Legal Damages form an important aspect of study under the un-codified Torts Law and can be understood in layman terms as monetary compensation given to a party who has suffered loss.
The Black’s Law Dictionary has defined Legal Damages (Hereinafter ‘Damages’) as a pecuniary compensation which may be recovered in the courts by any non-breaching party which has suffered loss, detriment, or injury, whether to his person, property, or rights due to the unlawful act or omission or negligence on behalf of another party.
For instance; ‘A’ and ‘B’ are two parties who mutually agreed to perform a sale of goods contract whereby ‘A’ paid for the goods in advance and ‘B’ was supposed to deliver the goods to ‘A’ on a stipulated date. If ‘B’ fails to deliver the said goods to ‘A’ in accordance with the contract, then in such a case ‘A’ shall have the right to sue ‘B’ for damages.
You may think “Damage” and “Damages” bear the same meaning – only singular or plural terms. Right? However, it is important to understand the difference between the terms “Damage” and “Damages”. Damages refer to the compensation awarded or claimed for; Damage on the other hand refers to the loss or injury caused to the aggrieved party, whether monetary or non-monetary (for instance injury to character, reputation or mental agony caused).
It is pertinent to note that the type of damages awarded in a suit depend on the nature of damages being claimed for in that particular suit.
Broadly, damages can be categorized into the following types:
Nominal Damages
Nominal Damages are awarded when the non-breaching party in question has not suffered any actual harm or loss or injury and/or when there is a violation of the rights of the non-breaching party without any actual loss being proved as a result of the wrongful act or omission on behalf of the other party. The underlying principle for awarding nominal damages is to ensure that the violation of a legal right does not remain without a legal remedy.
Exemplary Damages
Exemplary Damages are awarded in the form of punishment when the rights of the non-breaching party in question has been violated as a result of a willful act or omission on behalf of the breaching party which is malicious, violent, oppressive, fraudulent, wanton or grossly reckless. Exemplary Damages are Punitive in nature[1]. The objective behind awarding these damages is to have a deterrent effect, punish the defendant and not merely compensating the non-breaching party.
Consequential & Special Damages
Consequential Damages are the ones that arise naturally in the usual course of things by the non-breaching party as a consequence of the breach itself. However, in order to ascertain such damages, what is to be seen is whether such consequence was foreseeable. Special Damages on the other hand refer to the compensation sought for incidental loss like the expenditures that may be incurred by the non-breaching party in unusual circumstances to minimize the loss caused by the breach or any special or extra fees paid by the non-breaching party.
Liquidated & Unliquidated Damages
Liquidated Damages are one of a kind in a manner that these damages are stipulated beforehand by the parties while entering into a contract. Liquidated Damages are in monetary form and parties may agree to pay such sum if there is a breach of contract.
Unliquidated Damages on the other hand is the compensation that cannot be stipulated for or foreseen by the parties beforehand and are awarded by the courts after adequate assessment of the actual loss or injury suffered by the non-breaching party.
Thus a non-breaching party has the right to claim any of the above mentioned damages depending on the loss suffered or right violated. However, in order to be successful in the cause of action and claim damages, the non-breaching party will have to prove the existence of such wrongful act or omission which caused the breach of a legal duty or violation of the legal right vested in it.
This brings us to the crucial point of discussion that whether damages can be claimed by a party on the ground alone that it has suffered losses? We will understand the same with the help of the two maxims; Injuria sine damno and Damnum sine injuria.
Injuria sine damno
Injuria sine damno is the Latin term for ‘Injury without damage’. This Maxim explains that the non-breaching party need not prove the damage caused or loss occurred while claiming for ‘damages’. The only question that has to be adjudicated upon in the court by the non-breaching party is whether there is a violation of the rights of the non-breaching party, i.e., whether there is injuria or not. In this regard, quoting Chief Justice Holt’s (England) words are of utmost relevance. He said that: “If the Plaintiff has a right, he must of necessity have a means to vindicate and maintain it, and a remedy, if he is injured in the exercise of enjoyment of it; and indeed it is a vain thing to imagine a right without a remedy; for want of right and want of remedy are reciprocal”[2].
Damnum sine injuria
Damnum sine injuria is the Latin term for ‘Damage without injury’. This Maxim explains that the non-breaching party cannot bring an action against another party until and unless there has been a violation of the legal rights of the non-breaching party. In this regard, the words of Lord Wright in the case Grant v. Australian Knitting Mills[3] can be quoted as follows - “The mere fact that a man is injured by another’s act gives in itself no cause of action; if the act is deliberate, the party injured will have no claim in law even though the injury is intentional, so long as the other party is exercising a legal right”. Thus in order to bring an actionable claim against defendant and claim damages, the non-breaching party will have to prove ‘existence of injury caused due to an illegal act of the defendant and not otherwise’.
Legal Damages under Indian Contract Act, 1872
As already discussed above, every party who is injured by the breach of a contract has a right to bring an action for claiming such damages from the breaching party. The basic ideology behind making Legal Damages a part of Contract Law was to protect the interest of the non-breaching party or the Plaintiff in the case of contracts i.e., to place the plaintiff in the same position he would have been in if breach of contract had not occurred.
For the claim to be successful, the plaintiff has to prove the breach of contract and actual loss or injury caused due to such breach. Legal Damages are primarily discussed in Sections 73 and 74 of the Indian Contract Act 1872 (“the Act”).
Section 73 of the Act stipulates about unliquidated and consequential damages that are those which the contracting parties could foresee as arising naturally during the ordinary course of things. Thus compensation would be awarded only if the injury, loss or damage sustained by the non-breaching party is not remote or indirect. Thus ‘remoteness of damage’ has to be ascertained by the court before compensation can be awarded for the same.
By the term 'Remoteness of Damage'[4], we mean the possibility of a particular loss to take place or an injury or loss which is foreseeable or can be contemplated by both parties at the time they made the contract. In this regard, courts apply the famous rule given by the case of Hadley v. Baxendale[5] wherein the ruling given by Alderson B to identify ‘remoteness of damage’ is of utmost relevance.
The same has been summarized below:
- Such damage should have been fairly and reasonably considered to arise naturally according to the usual course of things;
- Such a Damage supposed to have been reasonably contemplated by the contracting parties;
- Such Damage should have been foreseeable as a possible consequence from the breach of contract;
On the other hand, Section 74 of the Act deals with stipulated or liquidated damages. Thus, in a situation where a sum of money has been already stipulated for in the event of breach of contract, the non-breaching party shall have the right to be compensated to the extent of the sum mentioned in the contract and not more (except if it a reasonable compensation in the eyes of law). Thus, stipulated or liquidated damages set a maximum limit to the liability of the breaching party. Such a stipulation may be by way of penalty as well.
Thus in case of liquidated damages, courts do not have to undergo the process of calculating or measuring the damages. But in the case of unliquidated damages, the courts have to calculate the damages or determine the loss in terms of money. Therefore, ‘measure of damages’ is another important aspect of Legal Damages under the breach of contract.
Invariably, the court takes into account the following principles while calculating damages:
- Direct inconvenience caused to the plaintiff as a result of the breach of contract;
- In case of breach of sale of goods contract, the appropriate measure of damages will be to the extent of difference between the purchase price and the value of the good when misrepresentation regarding it was discovered;
- In case no damage is caused, it’s upon the court’s discretion to arrive at the amount of nominal damages;
- Damages in connection with mental agony caused to the non-breaching party will depend on case to case and upon court’s discretion;
- Claim for loss of expected profit has been allowed in courts[6];
- Damages are allowed for breach of confidence;
Rule of Mitigation of Damages
Lastly, it is the rule of ‘Mitigation of Damages’ that ensures a balance between the rights of both the breaching and non-breaching party. It implies that the non-breaching party cannot claim for such just any losses which could have been avoided had the non-breaching party taken reasonable steps to keep those losses to a minimum. The explanation to Section 73 of the Indian Contract Act, 1872 lays down that it is the duty of the non-breaching party to mitigate damages. This rule is mostly applied to the sale or purchase of goods.
For instance if in a sale of goods transaction, the buyer refuses to take the delivery of the goods then the seller must resell the goods and recover the difference between the money he realised and the money he could have received under the contract from the buyer in the form of damages. .
If he does not take the necessary steps then the enhanced loss suffered by him won’t be allowed to be compensated due to his own negligence towards mitigating the damages[7]. Thus it can also be said that the non-breaching party cannot hold the breaching party liable for even those losses which were incurred due their own unreasonable conduct[8].
The Author, Bhumesh Verma,, is a Corporate Lawyer with over 2 decades of experience in advising domestic and international clients, with a place in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters. Research inputs by Avni Aggarwal
References:
[1] Bhim Singh v. State of J. & K., AIR (1986) SC 494.
[2] Ashby v. White, Lord Raym (1703) 2 938.
[3] ALL ER (1935) 209, 217.
[4] Avtar Singh, Law of Contract and Specific Relief, EBC Publishing (ed. 6, 2016).
[5] Exch (1854) 9 341.
[6] MSK Projects Ltd. v. State of Rajasthan, SCC (2011) 10 573.
[7] Jamal v. Moola Dawood Sons & Co., ILR (1916) 43 Cal 493.
[8] Darbshire v. Warran, WLR (1963) 1 CA 1067.
