Acritical issue for contract law is what remedies are available to a party in the event that the other party breaches the contract. Remedies for breach may be available by operation of the law (i.e. irrespective of whether the remedies are expressed in the contract). An example of a remedy that is available by operation of law is an award of damages – or monetary compensation – to cover loss that is incurred by the innocent party as a result of the breach by the other party.
In common law jurisdictions, damages for breach of contract are said to be “available as of right”. In other words, a court does not have any discretion in determining whether damages should be awarded. Provided that the innocent party can prove the breach and the loss that it has incurred, it will be entitled to damages. By contrast, remedies that are recognized “in equity” are discretionary in nature, and only awarded where the court considers that they are justified by the circumstances, and where damages would be inadequate.
Examples of remedies that are recognized “in equity” are an order for specific performance, requiring the defendant to perform a contract, and an order for an injunction, requiring the defendant to refrain from doing something (for a further discussion about that body of law that is referred to as “equity” in common law jurisdictions, see China Business Law Journal volume 3 issue 5: Law or equity?).
A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia.com.