Measure of Damages

The measure of damages refers to the standard or method by which a court determines the amount of monetary compensation to be awarded to a person who has suffered a legal injury or loss. It constitutes the monetary evaluation of harm, restoring the injured party, as far as money can do, to the position they would have been in had the wrong not occurred. This principle lies at the heart of both the law of contract and the law of torts, ensuring fairness, justice, and deterrence.

Concept and Meaning

Damages are a pecuniary recompense awarded by a court to a party who has suffered loss or injury as a consequence of another’s breach of duty or contract. The term “measure of damages” denotes the guiding rule or basis used to quantify that loss. It does not refer to a fixed sum but to the method of assessment.
The general rule is expressed by the Latin maxim “restitutio in integrum”, meaning restoration to the original position. Thus, damages aim not to punish the wrongdoer but to compensate the victim, placing them, as nearly as possible, in the position they would have occupied had the wrongful act not occurred.

Measure of Damages in Contract Law

In contract law, damages are awarded for loss suffered due to a breach of contract. The measure of damages is governed by Section 73 of the Indian Contract Act, 1872, which states:

“When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby which naturally arose in the usual course of things, or which the parties knew, when they made the contract, to be likely to result from the breach of it.”

Thus, compensation is recoverable for:

1. Direct and natural losses, which arise in the ordinary course of events.
2. Consequential or special losses, which were within the contemplation of both parties at the time of making the contract.

Losses that are remote or speculative are not recoverable.

Principles Governing Damages in Contract:

1. Causation: There must be a causal connection between the breach and the loss.
2. Remoteness: Only losses foreseeable at the time of contract formation can be claimed (as per Hadley v. Baxendale, 1854).
3. Mitigation: The injured party must take reasonable steps to reduce the loss; failure to do so may reduce the damages recoverable.
4. Certainty: Damages must be proved with reasonable certainty, not based on conjecture.

Types of Damages in Contract:

• Ordinary Damages: Arising naturally from the breach.
• Special Damages: Arising from special circumstances known to both parties.
• Nominal Damages: Token damages awarded where no actual loss occurred but a right was infringed.
• Liquidated Damages: Pre-estimated sum agreed upon in the contract.
• Exemplary or Vindictive Damages: Rarely awarded in contract law, except in cases like wrongful dishonour of a cheque or oppressive conduct by a public authority.

Leading Case: Hadley v. Baxendale (1854)

In this landmark English case, the plaintiff’s mill stopped when its crankshaft broke. The defendant carrier delayed delivery of the replacement shaft, causing further loss. The court held that the defendant was not liable for losses that were not foreseeable. This case established the rule that only those damages arising naturally or within the contemplation of both parties at the time of the contract are recoverable.

Measure of Damages in Tort Law

In the law of torts, damages aim to compensate for harm caused by a wrongful act or omission, whether it involves personal injury, property damage, or reputational loss. The measure depends on the nature of the tort and the extent of the harm.

General Principles in Tortious Damages:

1. Restitutio in Integrum: Restore the injured person to the pre-injury position.
2. Causation and Remoteness: The loss must be a direct and proximate result of the defendant’s act (as in Re Polemis, 1921).
3. Foreseeability: The defendant is liable for foreseeable harm (as refined in The Wagon Mound (No. 1), 1961).
4. No Double Recovery: The plaintiff cannot recover damages twice for the same injury.

Common Heads of Damages in Torts:

1. Personal Injuries: Compensation covers medical expenses, pain and suffering, loss of earnings, and diminished earning capacity.
2. Property Damage: The measure is the cost of repair or the market value of the property destroyed.
3. Defamation: Damages are based on loss of reputation, humiliation, and mental distress.
4. Nuisance or Trespass: Damages correspond to the extent of interference with property or enjoyment.
5. Negligence: Based on foreseeable loss arising from a duty of care breach.

Types of Damages in Tort Law:

• General Damages: For non-quantifiable losses such as pain, suffering, or loss of amenity.
• Special Damages: For specific, quantifiable financial losses proved by evidence.
• Aggravated Damages: Awarded where the defendant’s conduct aggravates the injury, e.g., deliberate insult.
• Exemplary or Punitive Damages: Imposed to punish the wrongdoer for oppressive, arbitrary, or unconstitutional acts.
• Contemptuous Damages: Token damages awarded when the plaintiff technically wins but the court disapproves of the claim’s nature.

Measure of Damages in Defamation

In defamation, damages are assessed according to the injury caused to the plaintiff’s reputation and mental suffering. The court considers:

• The plaintiff’s standing in society.
• The gravity and extent of the defamatory publication.
• The motive and conduct of the defendant.
• The effect of the publication on the plaintiff’s profession or business.

In libel, damages are presumed without proof of actual loss. In slander, proof of actual damage is generally required, except in cases of imputations concerning crime, disease, or professional misconduct.

Remote and Consequential Damages

Damages are recoverable only for losses that are proximate and not remote. Remote damages are too distant in causal connection from the wrongful act to be compensable. The test of remoteness, established in Hadley v. Baxendale, applies in both contract and tort law.
For example, if a carrier’s delay in delivering machinery causes the buyer to lose future business opportunities, the loss of those opportunities would be considered too remote unless specifically communicated.

Mitigation of Damages

A fundamental rule in assessing damages is that the injured party must act reasonably to minimise loss. Failure to mitigate may result in reduced damages. For instance, an employee wrongfully dismissed must make reasonable efforts to find new employment rather than claim indefinite loss of wages.

Liquidated and Unliquidated Damages

• Liquidated Damages: A specific sum agreed upon by the parties in advance, payable upon breach. Courts generally uphold such clauses if the amount represents a genuine pre-estimate of loss.
• Unliquidated Damages: The quantum is not predetermined and is assessed by the court based on evidence. Tort damages are typically unliquidated.

Under Section 74 of the Indian Contract Act, where a sum is named as liquidated damages, the court may award reasonable compensation not exceeding that amount.

Exemplary or Punitive Damages

While most damages are compensatory, exemplary damages are punitive, awarded in cases of oppressive, arbitrary, or unconstitutional acts by the defendant. Examples include false imprisonment by public officers or malicious prosecution.
In Rookes v. Barnard (1964), the House of Lords limited the scope of exemplary damages to three categories:

1. Oppressive, arbitrary, or unconstitutional acts by government servants.
2. Wrongful conduct calculated to make profit exceeding compensation payable.
3. Statutory authorisation for exemplary damages.

Indian courts have also recognised exemplary damages in cases such as Ghaziabad Development Authority v. Balbir Singh (2004), where public authorities acted unfairly.

Assessment of Damages

The court evaluates damages based on evidence, circumstances, and reasonable probability. The following factors are typically considered:

• Nature and extent of injury or loss.
• Conduct and motive of the wrongdoer.
• Market value or measurable cost of loss.
• Impact on income, business, or reputation.
• Aggravating or mitigating factors.