LEGAL PERSPECTIVE: Remedies for Breach of Contracts by Dr AbdelGadir Warsama, Legal Counsel, Bahrain

The parties to a contract, usually, are required to fully perform their obligations they agreed to as stipulated in the contract. However, one of the parties could fail to perform his obligations for any reason. If such situation happens, the injured party has variety of remedies for breach of the contract. Generally, the objective of the anticipated remedy is to put the injured party in the same (or nearer) position as if the contract has been performed. There are legislations in some countries to cover the issue of such remedies. However, the contracting parties by themselves can provide their own remedies for application in case one fails to perform. Also, the parties can limit the remedies offered by the legislation or the damages that can be recovered. If the parties agree on the amount of damages to be paid to the injured party, this amount is known as liquidated damages.

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An agreement for liquidated damages is legally enforced if the amount is reasonable and if the actual damages would be difficult to prove. The amount of the liquidated damages is, generally, considered reasonable if it is not that large as to be a penalty or so small as to be unconscionable. If a liquidated damages clause is not enforceable because it is a penalty or unconscionable, then the injured party can seek to recover the actual damages that were suffered.

Liability for consequential damages resulting from a breach of contract, may also be limited or excluded by agreement between the parties. The limitation or exclusion is not enforced if it would be unconscionable. In some countries, for example, any attempt to limit consequential damages for injury caused to a person by consumer goods is considered prima facie unconscionable.  Suppose an automobile factory makes a warranty as to the quality of their automobile. Later they attempt to disclaim responsibility for any person injured if the car does not conform to the warranty and to limit its liability to replacing any defective parts. The disclaimer of consequential injuries in this case would be unconscionable and therefore would not be enforced.

Exclusion of or limitation on consequential damages is permitted where the loss is commercial, as long as the exclusion or limitation is not unconscionable. Generally, there is enough room for the parties to determine acceptable damages. This will help both parties, to a great extent.