Solicitors must understand when reliance damages are available, how the bad bargain defence operates, and what expert evidence is required to prove expenditure was incurred in reasonable reliance on the contract being performed.
When to Claim Reliance Rather Than Expectation Loss
Expectation damages (lost profits) are the primary remedy under Robinson v Harman [1848]. Reliance damages are appropriate where: the claimant cannot prove lost profits with sufficient certainty; the claimant made a bad bargain and would not have recovered expenditure even if the contract had been performed; or the claimant elects reliance damages where permitted.
In CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16, the Court of Appeal confirmed that a claimant may elect reliance damages even where expectation damages are difficult to prove, subject to the defendant's right to argue bad bargain. Solicitors should model both measures early with the expert to determine which produces the better net recovery after defences are applied.
Reliance loss is common in IT implementation failures, aborted transactions, and early-stage ventures where profit projections are inherently uncertain but expenditure is well-documented. Construction claims may also include reliance elements where preparatory costs were wasted due to wrongful termination.
Anglia TV v Reed and Pre-Contractual Expenditure
Anglia Television Ltd v Reed [1972] 1 QB 60 established that pre-contractual expenditure may be recoverable as reliance loss where it was within the contemplation of both parties at the time of contracting. The claimant had spent money preparing to produce a play before the defendant wrongfully repudiated the contract to provide the lead actor.
The key is contemplation, not timing. Expenditure incurred before contract signature is not automatically excluded, but it must have been expenditure that the parties expected would be incurred in performance of the contract they were entering. Solicitors should plead this expressly and provide the expert with evidence of pre-contract negotiations showing both parties knew of and expected the expenditure.
The expert's role is to identify and total all reliance expenditure, pre-contractual and post-contractual, incurred in performance of or preparation for the contract, supported by invoices, bank statements, and accounting records. Each item should be traced to the contract and explained.
The Bad Bargain Defence
Under the bad bargain defence, the defendant argues that even if the contract had been performed, the claimant would not have recovered the expenditure because the venture would have been unprofitable. If established, reliance damages are reduced or eliminated to prevent the claimant recovering more than their true loss.
The burden of proving bad bargain rests on the defendant. In Naughton v O'Callaghan [1990] 2 IR 456 and subsequent authorities, courts have held that the defendant must show the claimant would have been in a worse position had the contract been performed, typically by demonstrating negative expected value from the contract.
The expert must be prepared to model the but-for profitability of the contract, not only the expenditure wasted. If the defendant's expert asserts bad bargain, the claimant's expert should address whether the venture would have been profitable, using contemporaneous business plans, market analysis, and pre-breach trading data. Solicitors should not instruct reliance-only analysis without considering this defence from the outset.
Expectation vs Reliance: Strategic Choice
The election between expectation and reliance requires careful analysis. Expectation damages may produce a higher recovery where profits were substantial and provable. Reliance may produce a higher recovery where profits are unprovable but expenditure is large and well-documented, provided the bad bargain defence fails.
In some cases, the claimant recovers the higher of the two measures, not both. Double recovery is not permitted. The expert report should present both calculations where appropriate, with a clear recommendation on which measure the evidence supports.
Contractual clauses limiting damages may interact differently with each measure. Review limitation and exclusion clauses before finalising the measure pursued. An exclusion of 'consequential loss' does not necessarily exclude reliance loss, but may affect specific heads within the reliance calculation.
Expert Report Approach to Wasted Expenditure
A wasted expenditure expert report should include: an identification schedule listing each category of expenditure with supporting documentation references; a legal framework section noting the measure of damages instructed (reliance/election); analysis of whether expenditure was incurred in reasonable reliance on contract performance; a bad bargain section addressing the defendant's likely arguments; and a summary of net reliance loss.
Expenditure that would have been incurred regardless of the breach (overhead that continues) should be excluded or apportioned. The expert should distinguish between sunk costs that are truly wasted and ongoing costs that merely continue. Receipts from third parties, insurance, or salvage must be credited.
Solicitors should instruct the expert to use a Scott Schedule-style itemisation for large claims, facilitating adjudication and settlement discussions. Early agreement on categories of expenditure at the joint experts' meeting can significantly narrow the quantum dispute before trial.
Frequently Asked Questions
What is the difference between reliance loss and wasted expenditure?
Reliance loss is the legal measure of damages; wasted expenditure is the typical forensic method of quantifying it. The claimant recovers expenditure incurred in reliance on the contract that has been wasted by the breach, subject to the bad bargain defence.
Can a claimant recover both lost profits and wasted expenditure?
No. The claimant elects between expectation damages (lost profits) and reliance damages (wasted expenditure). They cannot recover both for the same breach. The expert should calculate both to inform the election.