welcome to the seventh and final lesson in the contract law module in this lesson we will discuss damages for breach of contract as a rule in giving damages for breach of contract the complaining party should so far as it can be done by money be placed in the same position as they would have been in if the contract had been performed this is commonly referred to as the expectation measure of damages or expectation damages although this basic principle for determining damages is easy to understand it is often difficult to apply in practice this is particularly true in cases where the cost of one party performing the contract is significantly greater than any financial benefit the other party will receive from that performance in these cases the courts struggle with the question of whether to grant the non-breaching party the cost of actually performing the contract or simply award them a sum of money that compensates them for their financial loss resulting from non-performance of the contract we will examine the issue of measuring damages in this context in two cases pv house and garland coal and mining company and groves and john wonder in pv house an elderly couple the pv houses leased part of their farm to garland coal and mining company so that garland could remove coal from it the pv houses received compensation in the form of royalties for the use of their land under the terms of the lease garland was required to fill in the coal pits after removing the coal garland did not fill in the coal pits and left them on the land the cost of filling in the coal pits was approximately twenty nine thousand dollars which was significantly greater than the 300 drop in value of the pv house's farmland that resulted from the pits being left unfilled to put the cost of filling in the pits in perspective the pv house's farm was in total only worth around 3 500 the pv houses sued garland for breach of contract the court agreed that garland had breached the contract and turned its attention to the proper measure of damages in this respect there were two possibilities the cost of performance namely the cost of filling in the coal pits and the diminution in value of the pv house's farmland the majority of the court found that the proper measure of damages was the 300 diminution in value and not the 29 000 cost of filling in the coal pits although the court acknowledged that you should usually get the cost of performance it was not appropriate in these circumstances in reaching this conclusion the court found that awarding cost to performance would be oppressive and unfair the requirement to fill in the pits was only a secondary provision of the contract and was therefore only incidental to the main purpose of the contract finally no one would spend that much money to fill in the coal pits and as such it would be unreasonable to force garland to pay the pv houses for something they would never do this would result in an inappropriate windfall gain for the pv houses the dissenting judgment held that the pv houses should get the 29 000 cost of performance the descent found that the requirement to fill in the coal pits was a very important part of the contract furthermore what a reasonable person would do was not a relevant question what did matter was what the parties agreed to do the dissent also noted that it may have been logical at the time the lease was negotiated for garland to have agreed to this the cost of filling in the pits could have easily been estimated by garland and therefore would have been considered by garland when deciding whether to enter into the lease in determining whether to award the cost of performance or diminution in value the courts normally ask two questions does the plaintiff have a special interest in their property other than as an economic vehicle in other words is there evidence that they valued their property differently than as a commodity and was this special interest communicated to the other party at contract formation or embedded in the terms of the contract between them this test suggests that as a general rule parties enter into contracts of this nature to make money as such where the contract is breached the correct measure of damages is their financial loss however where it is clear that the party entered into the contract to achieve a result other than purely financial gain and that intention was communicated to the other party it may be appropriate to award the cost of performance to ensure that the intended result can be achieved based on this test it is not clear that the majority decision in pv house is the right result this is because there was evidence to indicate that the pv houses agreed to give up a significant sum of money around 2500 in exchange for garland's promise to fill in the coal pits in the groves case groves agreed to lease land to john wonder under the terms of the lease john wonder was entitled to take gravel off of the land but was required to leave the land level once he was done john wonder did not leave the land level and therefore breached the lease the value of the land was approximately twelve thousand dollars and the cost of leveling the land was sixty thousand dollars the failure to level the land did not reduce its value in any material way groves sued and the court was asked to determine whether the proper measure of damages was diminution and value or cost of performance the majority of the court held that the sixty thousand dollar cost of performance was the proper measure of damages this was because any lower reward of damages would operate to reward john wonder for his willful breach the majority noted that basing a damage award on diminution and value in these circumstances would constrict the right of a homeowner to construct items of value that actually reduce the value of their land it would interfere with the individual's right to have works performed on their property that would actually diminish its value in contrast the dissenting judgment found that the proper measure of damages should be the diminution in value the dissent found that the majority decision placed too much focus on the gain to the defendant rather than on the loss to the plaintiff the aim should be to compensate the plaintiff for its loss not to punish the defendant for its breach the descent found that there was no unique or specific use for the land and that the purpose of the contract was to put the land into shape for general sale given that groves was holding the land for no reason other than financial gain the proper measure of damages was diminution and value similar to the decision in pv house the dissenting decision in groves likely leads to a more appropriate result unlike the pv houses groves was holding the land purely for financial gain and the fact that the land was not leveled after john wonder had removed the gravel did not result in a financial loss to groves as such by awarding groves 60 000 in damages the court gave him something he never expected to receive this leaves open the interesting question of whether it is ever appropriate for a court to base damages on the gain realized by the breaching party we will answer this question next in exceptional circumstances a plaintiff may be awarded damage measured by the defendant's gain this measure of damages is commonly referred to as disgorgement damages unlike normal damages for breach of contract discouragement damages operate to strip the defendant of the profit they have made often from the improper use of another person's property although there may be no measurable loss to the owner of the property who would not have otherwise used the property to generate any profit the court may award damages to the owner of the property equal to the profits realized by the defendants in proper use discouragement damages are a common equitable remedy in cases involving a breach of fiduciary obligations such as a breach of trust for example in the blake case blake was a former spy for the united kingdom in 1944 he signed an undertaking not to divulge any official information gained through his employment as a spy in 1989 blake wrote an autobiography which was a criminal offense because it divulged official information he had obtained through his employment as a spy the publisher was to pay him 150 000 pounds for the autobiography the united kingdom government sued blake for the hundred and fifty thousand pounds the question for the court was whether the united kingdom government was entitled to receive as disgorgement damages the profits that blake had earned on his autobiography the court held that a plaintiff was entitled to discouragement if expectation damages or specific performance are inadequate the relationship between the parties is one of trust or confidence and the plaintiff has a legitimate interest in preventing the defendant from profiting from the breach in concluding that the united kingdom government was entitled to discouragement the court found that each of the three requirements were met expectation damages equaled zero and it was too late to order specific performance the relationship was one of trust and confidence and the government had a legitimate interest in preventing the profit since it wanted to discourage other spies from doing the same thing an intangible loss is a loss that does not have any apparent economic value traditionally courts have refused to award damages for mental anguish or emotional suffering in breach of contract cases however where such intangible benefits are the very purpose for the contract a court may award damages to compensate for intangible injuries that are caused by a breach of contract for example in jarvis and swan tours limited mr jarvis booked a two-week holiday in switzerland with swan tours the holiday was a great disappointment and mr jarvis sued for breach of contract the court was asked to determine if mr jarvis was entitled to monetary damages to compensate him for his loss of enjoyment in concluding that mr jarvis was entitled to monetary damages the court found that an award of damages for intangible injuries was appropriate given the very purpose of the contract was for peace of mind and relaxation as we have discussed the purpose of damages for breach of contract is normally to compensate the plaintiff for their loss and not to punish the defendant for their breach however in rare circumstances it may be appropriate to punish the defendant through an award of damages this type of damages is referred to as punitive damages punitive damages are normally not awarded because they go against the basic private law principle that damages are to be compensatory they are a windfall to the plaintiff and because they result in the imposition of a penalty on a defendant without the procedural protections normally given in criminal proceedings however if the defendant has done something that the court thinks deserves punishment the plaintiff may be entitled to recover both compensatory damages and punitive damages that said a court will award punitive damages only in exceptional circumstances where the defendant's conduct can be described as harsh vindictive reprehensible and malicious for example in whitten and pilot insurance company the appellant's family home was destroyed by fire the respondent insurance company unjustifiably refused to pay the appellant's claim under a fire insurance policy the ensuing legal battles lasted for several years and cost the appellant approximately three hundred and twenty thousand dollars at trial the jury awarded 345 000 in compensatory damages and 1 million dollars in punitive damages the court of appeal reduced the punitive damage award to one hundred thousand dollars the court of appeals decision was appealed to the supreme court of canada the supreme court of canada was asked to determine if the one million dollar jury award in punitive damages was excessive the supreme court of canada restored the jury award of one million dollars in punitive damages stating that this was an exceptional case that justified an exceptional remedy although the damage award was high the supreme court of canada found that the amount of damages was not so disproportionate as to exceed the bounds of rationality normally an award of damages will not only include the direct loss incurred by the plaintiff but any consequential loss that has also resulted from the breach a common example of a consequential loss is the loss of profits this could happen for example when company a fails to deliver products to company b and as a result company b is deprived of the profits it would have received by selling those products at a higher price to their customers the question that needs to be decided by the court is to what extent should the defendant be responsible for the plaintiff's consequential loss if i agree to rent you a car and i have no idea why you need the car should i be responsible for any losses you realize if i breach my promise what if you need the car to make a delivery and your failure to make the delivery results in a loss of 10 million dollars can you sue me for this loss in general the answer is likely no this is because in assessing the extent of damages resulting from a breach of contract the courts generally limit the damages to those that can be fairly or reasonably considered as arising naturally from the breach or that are reasonably in the contemplation of both parties and known to both parties at the time the contract is formed for example in hedley and baxendale the plaintiff owned a mill a mill shaft broke and all production at the mill stopped the plaintiff asked the defendant to take the shaft to the manufacturer the delivery was late and the plaintiff lost 300 pounds in profits as a consequence the defendant only knew that the plaintiff was having a shaft transported from the mill to the manufacturer the plaintiff sued for the lost prophets the court held that the defendant was not liable for the plaintiff's lost profits the damages were too remote since the defendant did not know that this was the plaintiff's only mill shaft and that a failure to deliver it on time would result in a shutdown of the mill and a loss of profit there were many other plausible reasons why the shaft may have been sent to the manufacturer to be repaired before a spare one broke to be sent back to the engineer who made it because there were other problems with other machinery and it could not be used given these other possibilities the loss realized by the plaintiff was not a reasonably foreseeable consequence of the breach a defendant is only liable for damages that could be fairly or reasonably considered to arise naturally from the breach or are reasonably in the contemplation of both parties and known to both parties at the time the contract is formed in assessing the quantum of damages a court normally distinguishes between ordinary losses which can be imputed and special losses which to be recoverable must be made known by the plaintiff to the defendant the distinction between ordinary losses and special losses is considered in the victoria laundry case in victoria laundry the defendant delivered a boiler to the plaintiff late as a result of the late delivery the plaintiff suffered a loss of ordinary profits and profits on lucrative government contracts the plaintiff sued the defendant to recover its lost profits the court held that the plaintiff was not entitled to recover the full loss realized on the lucrative government contracts since the loss associated with these contracts was too remote however it was within the reasonable contemplation of the defendant that a failure to deliver the boiler on time would result in a loss of ordinary profits as such the court did award damages for the loss of ordinary profits including an amount that represented the ordinary profits lost on the lucrative government contracts even though the full amount of lost profits on the government contracts was unforeseeable and therefore too remote it was still possible to recover for the ordinary profits that would have been earned from the use of the boiler we will conclude our final lesson in the contract law module with a brief discussion of the duty to mitigate it is a general principle of contract law that the plaintiff must attempt to mitigate their loss rather than to allow it to increase unreasonably in this respect a plaintiff is required to do everything that a reasonable person would do in the circumstances where a plaintiff takes reasonable steps to mitigate their loss they are permitted to claim as damages any incidental expenses they reasonably incur in the course of mitigating their loss where a plaintiff fails to take reasonable steps to mitigate their loss they are not entitled to damages for any loss that has resulted from their failure to mitigate as a general rule if a plaintiff has a fair real and substantial claim for specific performance they are not required to mitigate this concludes the lesson on damages for breach of contract which is the final lesson in the contract law module i hope you've enjoyed the lessons on contract law for the last time thank you for listening make sure to answer the knowledge check questions at the end of this lesson if you have any questions please post them to the owl discussion forum your questions may be answered in writing on the discussion forum or during the weekly question and answer session