Calculate contract loss and apply its limits
Choose expectation or reliance measures and test causation, remoteness and reasonable mitigation.
Exam scope and assessment notes
A Level · section 3.4.1. Original educational scenarios about the law of England and Wales, checked on 14 October 2026. Model answers are formative reasoning, not advice about a real dispute, Cambridge marks or predicted grades. Read the exact statute, case and exam-year source where a rule is disputed or changes. A larger annotated authority bank, full unseen papers and specialist law-teacher review remain outstanding.
Before you begin
- Read a short source carefully and separate its rule from the facts
- Explain which element a fact supports and what is still uncertain
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What should a legal problem answer connect?
What you will learn
- Distinguish expectation and reliance loss
- Apply recovery limits and avoid double counting
Choose the protected interest
Contract damages generally compensate rather than punish. Expectation aims to place the claimant in the position proper performance would have produced; reliance concerns qualifying expenditure wasted through entering the bargain. These are measures, not separate opportunities to recover the same loss twice. A reliance claim should not automatically escape proof that the bargain would have been loss-making.
Replacement cost, lost net profit or loss in value require evidence. Ruxley illustrates why disproportionate cost of cure is not always the appropriate measure. Deduct saved expenditure and avoid adding gross revenue to the costs that would have produced it. Nominal damages may recognise breach where no compensable loss is established.
Apply the limits to each item
Causation links breach to the claimed loss. Hadley v Baxendale distinguishes ordinary losses arising in the usual course from special losses within the relevant parties' contemplation through communicated circumstances at formation. Foreseeability is not an unlimited right to every later event; contractual responsibility and context can matter.
Mitigation requires reasonable steps, not heroic or unreasonable action. Avoidable loss is not automatically recoverable, and reasonable mitigation expenditure can be relevant even if the attempt fails. Evaluate damages as a flexible monetary remedy while recognising evidence costs, uncertainty and cases in which money poorly substitutes for performance.
Sources for this lesson
Pause and explain
Can the same loss be recovered twice by labelling it both expectation and reliance?
Worked example
An unpaid £200 supply is repudiated. A reasonable like-for-like replacement costs £270 and no other loss exists. Calculate the simple expectation difference.
Show the worked solution
- Original performance would cost £200.
- Replacement costs £270.
- Deduct the original cost saved rather than award all £270.
Answer The simple additional cost is £70. Awarding £270 without accounting for the unpaid £200 saved would overcompensate on these assumptions; real claims also need causation, remoteness and mitigation evidence.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Guided: Calculate the replacement difference in the example.
Give me a hint
Subtract the original unpaid price.
Compare my reasoning
- Identify £270 replacement.
- Identify £200 saved original cost.
- Subtract once.
The additional cost is £70 on the supplied like-for-like assumptions. The saved original payment must be accounted for to avoid compensating the claimant beyond the position proper performance would have produced.
Look for these in your work
- Calculates £70
- Uses saved cost
- Explains measure
Independent: A claimant alleges extraordinary lost profits from a use never communicated at formation. What remoteness question arises?
Give me a hint
Distinguish ordinary and special losses.
Compare my reasoning
- Identify unusual circumstances.
- Check relevant knowledge at formation.
- Assess whether the loss falls within responsibility.
The answer must ask whether the extraordinary profits were an ordinary consequence or within relevant contemplation through communicated special circumstances. Mere later proof that the claimant hoped for them does not automatically make the loss recoverable.
Look for these in your work
- Identifies unusual loss
- Uses formation knowledge
- Rejects hindsight
Application: A claimant reasonably attempts a substitute that fails. Are its costs automatically excluded just because it failed?
Give me a hint
Mitigation is judged for reasonableness, not guaranteed success.
Compare my reasoning
- Identify the attempted response.
- Assess reasonableness when chosen.
- Connect qualifying costs to breach.
Reasonable mitigation expenditure is not automatically excluded because the attempt failed. Its necessity, reasonableness and connection to the breach need assessment, while unreasonable additional costs remain separately challengeable.
Look for these in your work
- Uses time of choice
- Tests reasonableness
- Links expenditure
Common mistakes
- Claiming gross revenue as net profit
- Adding overlapping expectation and reliance loss
- Ignoring costs saved
What can you explain now?
Can the same loss be recovered twice by labelling it both expectation and reliance?
Compare with the explanation
No
Different measures must not duplicate compensation for the same loss.
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Make it stick
Can the same loss be recovered twice by labelling it both expectation and reliance?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.