Originally from Handbook on International Commercial Arbitration

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The primary purpose of the vast majority of arbitrations is to recover compensation for a breach of contract. The procedural wars are but a means to an ultimate end of how much is to be paid. Contracts are concerned with the mutual passing of benefits – generally, money is paid for goods or services. The basic rule is that if one party defaults on its obligation, the loss is the value of the benefit that the other party has been deprived of by that breach. In doing so, the law does not enquire into whether the bargain struck in making the contract was a good or a bad bargain. It is for that reason that the value deprived of under the contract is important.

The guiding principle of damages for a breach of contract is “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”

In a typical sale of goods case, the breach can be either a nonperformance—e.g., a failure to deliver at all—a delayed performance, or a defective performance. Take a contract to purchase a truck. If there is non-performance by the transferor (the seller), the basic loss is the difference between the market price of a replacement truck and the contract price. In defective rather than non-performance—e.g., late delivery—the basic loss is the difference between market value at the date of due delivery and the market value at actual delivery. In the case of a defective product, the basic loss is the market value as represented or as it should have been and the actual market value.

In addition to the basic loss, there may be consequential losses. For example, the truck may have been intended to be profit-earning. A failure to perform or a late or defective performance may all result in lost profits either by using the truck itself or by selling it. In general terms, such losses are recoverable.