Contractual Damages: What to and Not to Claim and How to Get Through

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Kwesi Papa Owusu-Ankomah

So you’ve been wronged. You’re sure of that. Your lawyer agrees with you. You’re now excited, you’re about to get revenge and you want all of it. But then in discussing the way forward you realise some impediments – you’re being asked for documents and a million other things. All you can say at this moment is – I don’t have it. Then you hear the words you never thought you’d hear when you knew you had a good case: I’m sorry if you don’t have it then I can’t help you. Now you’re confused more than ever because the revenge that you had so longed for is now all but a dream only because you can’t just get damages on your “say so”.

Many litigants are far too familiar with the narrative above and some can even relive it because it accurately captures their emotions. When a party is wronged, the innocent party is entitled to damages as compensation for the wrong. The type and measure of damages depends on the unique facts of the case. To bring clarity, this article focuses on demystifying the minefield associated with navigating the complex question of damages (in contract) for all litigants, in simple terms – a KYC on damages.

What are damages?

Damages are essentially money paid to an innocent party to a contract or victim of a tort as compensation for the wrong act.[1] The purpose of damages is to put the innocent party in the position that it would have been in, as far as money is concerned, had the breach or wrong not occurred.[2] An innocent party entitled to damages in tort and contract can only claim damages in either cause of action because an innocent party is not expected to profit or be compensated twice for the same wrong.

What can I claim?

An innocent party can claim damages for a number of losses. In contract, losses suffered as a result of a breach of a term and losses that are reasonably foreseeable or reasonably in the contemplation of both parties at the time the contract was formed are recoverable (unless specifically excluded by the contract).  In determining whether a loss arose as a result of a breach, the courts consider whether the loss occurred in the ordinary course of things. With that out of the way, the question is – what losses can be described as being in the contemplation of both parties at the time the contract was formed as a loss likely to be suffered by reason of a breach.

In determining a loss that is reasonably foreseeable, the courts have regard to whether (1) the loss arises in the ordinary course of things or (2) the defaulting party had special knowledge that a loss may be incurred on account of a breach. So if a defaulting party to a contract knew that a breach of the contract could lead to certain losses suffered by the innocent party, then the innocent party’s loss is, without more recoverable.[3] The test for reasonable foreseeability is an objective test meaning it is judged from the perspective of a reasonable man having all the facts. If the courts take the view that the losses were reasonably foreseeable then such losses are recoverable to the extent that the innocent party took steps to mitigate its losses.

What do I need to claim?

Proof, proof, proof !!!!. That’s all you need. First of all, the mere fact that you can prove that you have been wronged almost always means that you will be entitled to some form of damages without the need to prove the loss suffered.[4] Such damages are usually called general damages.[5] You have proved the breach, you have shown you have been wronged, chances are that you will be entitled to general damages: done and dusted.

To claim damages for some other loss, you need to get some form of proof to show the nature of loss and justify why the wrong party must pay for the loss incurred. Say you have managed to show that the loss was reasonably foreseeable at the time the contract was formed. Now there is an even bigger hurdle to scale by proving the exact nature and extent of loss suffered. This is done by presenting cogent evidence of the loss. You cannot just say that you suffered loss because of the breach without having some form of proof of the loss.

As an example, you entered into a contract to hire cars for an event. The car hire company cancelled and told you it could not provide the cars the night before the event. You were compelled to rent other cars at a higher price because of the short notice. In such a situation, you will be entitled to (1) general damages because you have been wronged (on showing that the contract was cancelled at the last minute) and (2) the cost of hiring the cars on short notice (special damages – by showing that you made alternative car hiring arrangements). But you cannot just say you made alternative car hiring arrangements without proving the cost incurred.

Special Damages

The courts have decided in many cases that in order for a party to be awarded special damages, that party must plead, particularise and prove the losses incurred.[6] In simple terms, a party seeking to get special damages must clearly state what those damages are, the unit cost under each head and prove every single cost before such losses will be recoverable.[7] There is a caveat but we will get to that in a bit! Special damages include loss of earnings, loss of use and reliance losses (losses incurred on the back of a contract or performance of a contract). The trick is to make sure you are not making any claim that has been excluded under the contract.

 What’s out of the question?

Losses that have expressly been excluded under the contract or are too remote are not recoverable. Generally, parties are not permitted to contract out of statute to their detriment (save in limited circumstances) so any contract purporting to exclude any statue is unenforceable.[8] However, parties are free to limit or exclude losses recoverable under a contract.

Losses that are too remote, to put it in another way, losses that were not in the contemplation of the parties at the time the contract was entered into are not recoverable.[9] In determining losses that are too remote, the focus is not on the quantum of losses but whether the type of loss suffered was in the contemplation of both parties at the time the contract was formed and recoverable. Damages for loss of use are only recoverable where there is actual damage/destruction to property and not because the innocent party was deprived use of the property.[10]

Money paid under an illegal/unconstitutional contract is not recoverable.[11] A distinction should be made between (1) an illegal/unconstitutional contract, (2) a contract in breach of a statute[12] and (3) an unenforceable contract[13] under which a party is entitled to reasonable compensation for services provided under the unenforceable contract.

Assessment of damages

In assessing damages, the courts consider all the facts of the case before awarding damages. Factors that the court take into account include the prevailing global economic situation at the time the breach occurred together with the negative effect the breach had on the finances of the innocent party analysed in the broader context of the evidence presented at trial to assess and award damages.[14]

The courts also look at the conduct of the innocent party in reducing the losses it incurs as a result of the breach. This is referred to as mitigation/ mitigating losses. A party is required to take steps to mitigate any losses incurred as a result of a breach. The courts have held that a party has a fundamental duty to mitigate its losses even if that party takes more onerous steps, incurs extra losses or additional expense to mitigate its losses.[15] Any additional cost incurred in mitigating losses would be taken into account in awarding damages.[16]  Consequently, a party that fails to mitigate its losses would be entitled to nominal damages[17] or an award that reflects the party’s failure to mitigate.

For instance, if a party to a construction contract that has been delayed for say 4 months checks into a 5 star hotel on the back of the breach hoping to recover hotel costs, the court will look at whether that party could have mitigated losses by finding cheaper accommodation with comparable facilities.

While parties are free to apportion risk in a contract, any agreement on payment of penalties where there is a breach is unenforceable. Damages which are meant to put the innocent party in the position it would have been in had the breach not occurred must be distinguished from penalties that punish or confer a windfall on the innocent party.[18]

 Interest

On interest, in cases where contracts have provisions on interest the court would respect the agreement of the parties.[19] Where there is no provision on interest, interest is awarded on damages from the date the cause of action arose to the date of judgment at the prevailing bank rate.[20]Once judgment is given, interest runs from the date of judgment to the date of final payment.[21] A party hoping that the court would award interest in its favour is required to produce credible evidence to support the award. Therefore, if a party presents credible evidence on the open value of a product which it had to purchase as a result of a breach of contract, the court is more likely than not to award damages similar to the open market value presented by the party seeking the award.[22]

Can my damages be increased, reduced or taken back?

Sadly, the answer to that is an emphatic YES. Damages can be reviewed on appeal (upwards or downwards) meaning that in theory damages can be reviewed such that you may not be entitled to anything depending on the peculiar facts of the case. Generally, the courts increase or reduce damages in 2 main situations – (1 )where the judge acted on wrong principles of law  or (2) where the amount awarded was not fair (too high or low).[23] The first part does not need much explanation. In determining the second part (fairness of the award), the appellate court is required to look at the entire evidence to determine whether the award of damages was excessive or unjustifiable before varying the award.[24] When a dissatisfied party challenges the decision of a court on damages, the court hearing the appeal has the power to vary the award. But the appellate court is required to give reasons for reducing the award for damages by the court of first instance.[25]

Practical Tips

Here are some final thoughts:

  1. First of all you need to make sure the contract is legal because money paid under illegal contracts are not recoverable. Having said that, who enters into an illegal contract anyway? You never know!!!;
  2. Then you need to double check to be sure you are not claiming damages for liability that has been excluded under the contract;
  3. Proof of losses are essential to getting you in the position you would have been in had the breach not occurred so do well to keep proof of that handy or better still in the cloud;
  4. If you are hoping to get damages please do well to mitigate your losses so that you do not give the courts a reason to award nominal damages; and
  5. Finally, schedule a meeting with your lawyer and do not be cheap J!

 

[1] Black’s Law Dictionary (9th edn, 2009) p 445 defines damages as “money claimed by, or ordered to be paid to, a person as compensation for loss or injury”[1]. Frank Gahan, The Law of Damages 1(1936) described damages as “the sum of money which a person wronged is entitled to receive from the wrongdoer as compensation for the wrong.”

[2] Royal Dutch Airlines (KLM) v Farmex Ltd [1989-1990] 2 GLR 623(SC)

[3] African Automobile v TOR [2011] SCGLR 907 at 911

[4] Bogoso Gold v Ntrakwa  [2011] SCGLR 415 at 419; African Automobile v TOR [2011] SCGLR 907 at 911

[5] Delmas Agency Ghana v Food Distributors International [2007 – 2008] SCGLR 748 at p 749

[6] Klah v Phoenix Insurance Co Ltd  [2012] 2 SCGLR 1139; Ankomah v City Investment Co. Ltd. [2012] 2 SCGLR 1123 at pp. 1125; Royal Dutch Airlines (KLM) v Farmex Ltd [1989-1990] 2 GLR 623(SC); Chahin and Sons v Epope Printing Press [1963] 1 GLR 163 at 173, Delmas Agency Ghana v Food Distributors International [2007 – 2008] SCGLR 748 at p 749 and African Automobile v TOR [2011] SCGLR 907 at 912.

[7] In Klah v Phoenix Insurance Co Ltd  [2012] 2 SCGLR 1139 the Akoto-Bamfo JSC opined at 1153 that there  “is a distinction exists between general and special damages: for whereas general damages arise by inference of law and therefore does not need to be proved by evidence; special damages representing a loss which the law will not presume to be the consequence of the defendant’s act but which depends in part , on special circumstances, must therefore be claimed on the pleading and particularised to show the nature and extent of damages claimed. The plaintiff must go further to prove by evidence that the loss alleged was incurred and that it was a direct result of the defendant’s conduct”. Also in Bogoso Gold v Ntrakwa  [2011] SCGLR 415 The court held at 419 that special damages refers to “past pecuniary loss that was calculable at the date of trial while the term general damages related to all other items of damage whether pecuniary or non-pecuniary. In the instant case, the losses claimed by the plaintiff in the past were such that they could not have been precisely calculated by them … they were anticipated and so equally incapable of being calculated at the date of trial; and thus fell into the category of general damages since their right to the amount of damages was dependent on what the court thought was fair and reasonable.”

[8] Fleming v. Massey [2016] O.J. No. 399

[9] Juxon Smith v KLM Dutch Airlines [2005-2006] SCGLR 438 at

[10] Ankomah v City Investment Co. Ltd. [2012] 2 SCGLR 1123 at pp. 1125, 1132-1133

[11] AG v Faroe Atlantic [2005-2006] SCGLR 271

[12] In City & Country Waste Ltd v AMA [2007-2008] SCGLR 409 the AMA sought to evade liability arising from a contract it voluntarily entered into in breach of the Local Governments Act, 1993 (Act 462). The Supreme Court held that AMA could not rely on its own breach Act 462 to its benefit particularly when both AMA and CCWL were equally at fault in breaching Act 462. In court’s view, CCWL was recovering the value of services provided to AMA and not money paid to AMA. It was also in the interest of justice to deprive AMA of the unjust enrichment it sought to gain from its conduct by retaining the benefit of the service provided to it without paying  reasonable compensation. On the legal status of the contract, the court explained that a contract entered into in breach of a statute is illegal if there is serious and sufficient public policy reasons for its prohibition. However, a  contract in breach of a statute does not always mean the contract is illegal. The courts apply a general public policy purpose principle to determine the effect of non-compliance with a statute where the statute was silent on the effect of non-compliance to ascertain whether such a contract was enforceable. In the instant case the court held that enforcing the contract would allow the district assemblies to evade the accountability framework created under Act 462 through the district tender boards. It must be noted that the court also stated that the approach in dealing with illegal/contracts in breach of a statute was to be developed on a case by case basis having regard to all the facts of the case, therefore, it may well be that a contract in breach of a statute could potentially be enforceable.

[13] Olatiboye v Captan [1968] GLR 146

[14] Standard Chartered Bank Ghana Ltd v Nelson [1998-1999] SCGLR 810 at 812

[15] Delmas Agency Ghana v Food Distributors International [2007 – 2008] SCGLR 748

[16] Delmas Agency Ghana v Food Distributors International [2007 – 2008] SCGLR 748

[17] Delmas Agency Ghana v Food Distributors International [2007 – 2008] SCGLR 748

[18] Halsbury’s Laws of England, 4th Edition, Vol. 12(1) at para 941

[19] Ghana Commercial Bank v Odom [1975] 2 GLR 54 and r 1; Court (Award of Interest and Post Judgment Interest) Rules, 2005 (CI 52)

[20] T.K Serbeh & Co. v Mensah [2005-2006] SCGLR 341

[21] r 2; Court (Award of Interest and Post Judgment Interest) Rules, 2005 (CI 52)

[22] African Automobile v TOR [2011] SCGLR 907 at 912; T.K Serbeh & Co. v Mensah [2005-2006] SCGLR 341 and Western Hardwood Ent Ltd v West African Ent Ltd [1998-1999] SCLR 105

[23] Juxon Smith v KLM Dutch Airlines [2005-2006] SCGLR 438 at 442

[24] African Automobile v TOR [2011] SCGLR 907 at 911

[25] Bogoso Gold v Ntrakwa [2011] SCGLR 415 at 419