What are the remedies to a breach of contract?

It is the governing principle of law that “Ubi jus ibi Remedium” meaning that wherever there is a right, there is a remedy. A contract, being a fountainhead of rights and obligations for the parties, would be of no value, if there were no remedies to enforce it.

When one party breaches a contract, the other party may seek a remedy to restore them to the position they would have been in had the breach not occurred. The law governing Contracts in Pakistan is the Contract Act, 1872. Additionally, the equitable remedies available at law for breach of contract are contained in the Specific Relief Act, of 1877.

There are several types of remedies available for breach of contract, including:

• Specific Performance: This remedy requires the party who breached the contract to fulfill their contractual obligations. This remedy is available when the subject matter of the contract is unique, and monetary damages would not be sufficient to compensate the other party.

• Damages: Damages are the most common remedy for breach of contract in Pakistan. This remedy requires the party who breached the contract to pay compensation to the other party for any losses suffered due to the breach. The amount of damages awarded will depend on the nature and extent of the breach and the losses suffered by the other party.

• Liquidated Damages: Liquidated damages are a predetermined amount of damages that the parties agree to in the contract in the event of a breach. This remedy is only available if the parties have agreed to it in the contract.

• Rescission: Rescission is a remedy that allows the parties to cancel the contract and restore the parties to their original positions before the contract was made. This remedy is available when the breach is serious enough to render the contract voidable.

• Repudiation: Repudiation is a remedy that allows the innocent party to repudiate the contract due to the breach. This remedy is available when the breach is serious enough to make it impossible or impractical for the parties to continue with the contract.

Specific Performance

Under Pakistani law, specific performance can be sought in civil courts under the Specific Relief Act, 1877. The party seeking specific performance will need to file a lawsuit against the party who breached the contract. The court will then hear the case and determine if specific performance is appropriate based on the facts of the case.

To seek specific performance of a contract in Pakistan, the following requirements must be met:

• The contract must be valid and enforceable.

• The contract must be of such a character that damages would not be sufficient to compensate the other party for its breach.

• The party seeking specific performance must have performed their contractual obligations or be willing to perform them.

• The party who breached the contract must have the ability to perform their contractual obligations.

• The party seeking specific performance must have suffered a loss or damage due to the breach.

Damages

Damages are the most common remedy for breach of contract. Damages refer to the monetary compensation awarded to the innocent party to compensate them for any losses suffered due to the breach of contract. The amount of damages awarded will depend on the nature and extent of the breach and the losses suffered by the other party.

There are two types of damages that can be awarded for breach of contract:

• Compensatory Damages: These are damages awarded to compensate the innocent party for the losses suffered due to the breach of contract. Compensatory damages aim to put the innocent party in the position they would have been in had the contract been performed.

• Consequential Damages: These are damages awarded for losses that are not a direct result of the breach of contract but are a consequence of the breach. Consequential damages can include lost profits, lost opportunities, and other indirect losses.

To claim damages for breach of contract, the innocent party must be able to prove that they have suffered a loss as a result of the breach of contract. The amount of damages awarded will depend on the specific facts of the case, including the nature and extent of the breach, the losses suffered by the innocent party, and any mitigating factors.

Liquidated Damages

Liquidated damages are a pre-determined amount of damages agreed upon by the parties in a contract, to be paid by the party who breaches the contract. Liquidated damages are recognized as a valid remedy for breach of contract, subject to certain conditions.

To be enforceable, the liquidated damages clause in a contract must meet the following conditions:

1. The amount of damages must be a genuine pre-estimate of the loss likely to be suffered by the innocent party in the event of a breach.

2. The clause must not be a penalty, i.e., the amount of damages must not be excessive or disproportionate to the loss suffered by the innocent party.

3. The clause must be clear and unambiguous.

4. The clause must be reasonable and not against public policy.

If these conditions are met, the innocent party may claim liquidated damages for the breach of contract without having to prove their actual losses. However, it is noteworthy that liquidated damages are a contractual remedy and must be agreed upon by the parties in advance. If there is no liquidated damages clause in the contract, the innocent party may still claim compensatory damages for the breach of contract, subject to the usual principles of contract law.

Rescission

Rescission allows the parties to cancel the contract and restore themselves to their original positions before the contract was made. Rescission is an equitable and discretionary remedy and is available when the breach is serious enough to render the contract voidable.

To seek rescission of a contract in Pakistan under Section 35 of the Specific Relief Act, 1877, the following requirements must be met:

1. The contract must be voidable or terminable by the plaintiff claiming rescission.

2. The breach of the contract must be a serious one or the contract is unlawful or extremely unpractical.

3. The party seeking rescission must not have contributed to the breach of the contract.

4. The party seeking rescission must have suffered a loss or damage due to the breach.

Repudiation

In the event that one party to the contract commits a breach that is so fundamental that it goes to the root of the contract and substantially impairs the other party's rights under the contract, the other party can seek repudiation of the contract. Repudiation gives the innocent party the right to terminate the contract and claim damages for any losses suffered as a result of the breach.

1. To seek repudiation of contract, the innocent party must show that:

2. The other party has committed a serious breach of contract that goes to the root of the contract.

3. The breach is a clear indication that the other party no longer intends to fulfill their obligations under the contract.

4. The innocent party has accepted the repudiation and terminated the contract.

If these elements are established, the innocent party may terminate the contract and claim damages for any losses suffered as a result of the repudiatory breach. It is important to note that the innocent party must act promptly in accepting the repudiation and terminating the contract, as delay may be construed as acceptance of the breach and waiver of the right to terminate the contract.

Additionally, a contract can also expressly provide for termination on an event that would not otherwise be regarded as a repudiatory breach allowing for termination at common law. Some contracts allow for termination in the event of a material or substantial breach. However, it is usual in contractual termination, to provide an opportunity to cure the breach to the breaching party, which if left uncured the termination assumes finality.