Compensatory Damages

Compensatory damages are sums of money a court orders a wrongdoer to pay a victim to restore them, as nearly as possible, to the position they would have occupied had the wrongful act not occurred. They are distinct from punitive damages, which aim to punish and deter, and from nominal damages, which symbolically vindicate a right without substantial loss.

Most legal systems divide compensatory damages into two broad classes:

• Special (economic) damages — quantifiable out-of-pocket losses such as medical bills, lost wages, repair costs, and lost profits.
• General (non-economic) damages — harder-to-measure injuries such as pain and suffering, emotional distress, loss of consortium, or reputational harm.

In common-law contract cases, the governing principle traces back to Hadley v. Baxendale (1854), which limits recovery to losses that were reasonably foreseeable at the time of contracting. In tort, the standard remedy seeks to place the plaintiff in the position they occupied before the wrong; in contract, it aims at the position they would have occupied had the contract been performed (the "expectation interest").

Compensatory damages also appear in international law. The International Law Commission's 2001 Articles on Responsibility of States for Internationally Wrongful Acts (Article 36) provides that a responsible state is under an obligation to compensate for damage caused by its wrongful act, insofar as such damage is not made good by restitution. The International Court of Justice has applied this principle in cases such as Armed Activities on the Territory of the Congo (DRC v. Uganda), where in its 2022 reparations judgment the Court ordered Uganda to pay US$325 million to the DRC.

Investment treaty tribunals likewise routinely award compensatory damages, often calculated using discounted cash flow or fair market value methodologies, to redress expropriations or breaches of fair and equitable treatment standards.