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Damages for breach of contract p332

Compensation and the different ‘ interests’

- Aim of an award of damage is to compensate c for the loss suffered as a breach of

- Trietel, 1992, ‘ in the first plae, a c could claim the protection of his expectation
- The basis of such a claim could claim the protection of his ‘ expectation intrest’
- Basis of such a lciam is c’s expectations engendered by the promise of the d he will
perform his contractual obligations, have not been fulfilled and that damages shold
compensate him for his disappointed expectations by putting him in as good a
position as he would have occupied had the defendant performed his promise.
Secondly, a claimant may claim the protection of his ‘ reliance interest’ that is to say,
- P333
- as a result of the defendant’s promise to perform his contractual obligations, the
claimant has acted to his detriment in entering into the contract and the award of
damages should compensate him to the extent he has relied to his detriment upon
the promise of the defendant.
- The aim here is to put the claimant in as good a position as he was in before the
defendant’s promise was made.
- Finally, a C may assert his restitution interest should be protected. A C who claims
the protection of his restitution interest does not wish to be compensated for the
loss which he has suffered’ he wishes to deprive the defendant of a gain which he
has made at the claimant’s expense.
- Most important factor is obviously the amount of damages which a claimant can
recover by way of compensation.
- Therefore the expectation measure is calculated by deducting the value of what you
actually received from the value of what I expected to receive.
- E.g. you buy a computer for £800, the market value is £800 but it is a defective
worth £400. Damages assessed would be £400.

- An award of damages to protect the reliance interest would seek to put me in the
position which I would have been in had I not entered into the contract.
- If you hadn’t entered into the contract- you wouldn’t have parted with the £800 and
wouldn’t get a computer worth £400. So the reliance measure is calculated by
deducitng the value of what you would have received from the amount paid.
- Restitution interest- restore you to the benefit conferred upon the seller- £800.
- Say if you promised to pay £800 but the computer was only worth £600- expectation
measure would be £600 ( value of what you expected to receive) less £400 ( the
value of what I actually received) which = £200. The reliance measure would be £800
( what I paid out) minus £400 ( the value of what I received) which equals £400.
- If I made a good bargain so the market value of the computer was £100, the
expectation measure would be £100 less £400 = £600- reliance meausure would
remain at £800 less £400 = £400.
- P334
- Where c has made a bad bargain he will want to claim the reliance measure; in other
cases the expectation measure – more advantageous will be more advantageous to
the clamant.

The expectation interest

- Contract seeks to protect the c’s expectation interest

- Robinson v Harman- per Parke B- ‘ the rule of the common law is where a party
sustains loss by reason of a breach of contract, he is, so far as money can do it, to be
placed in the same situation, with respect to damages, as if the contract had been
performed’- p855

- Justification for the award of the expectation measure is a binding promise creates
in the promisee an expectation of performance and the remedy granted for the
breach of such a binding promise seeks to fulfil to protect that expectation.
- Approach taken in England- White Arrow Express Ltd v Lamey’s Distribution, p73-
whe he stated the Robinson v Harman ‘ formulation assumes the breach has injured
[ c’s] financial situation position; if he cannot show it has, he will recover nominal
damages only’
- Alfred McApline Construction Ltd v Panatown, p534, Lord Clyde stated ‘ when one
refers to a loss in the context of a breach of contract, one is in my view referring to
the incidence of some personal or patrimonial damage’
- Financial situation of the parties because the contract will have been entered into
with a view to making a profit and the protection of that expectation of profit will
adequately protect the interest of the innocent party.

- P335- Ruxley Electronics and Construction Ltd v Forsyth, p360- ‘ the law must cater
for those occasional where the value of the promise to the promise exceeds the
financial enhancement of his position which full performance will secure’

- One of the most important purposes which a party hasin entering into a contract is
of course to secure the promised performance but the commitment of the law to the
protection of the c’s interests in performance is, in fact, rather weak.
- SP- traditionally been seen as a secondary remedy, where the courts tend to seek to
put the claimant in the financial position which to give him the funds necessary to
secure actual performance.

- Alfred McApline Construction Ltd v Panatown- Lord Godff- does a philanthropist

have a claim for substantial damages notwithstanding the fact he doesn’t own the
hall and the breach hasn’t caused him any obvious works. Lord Goff agreed with Lord
Griffiths in Linden Gardens Trust, 96 was of the opinion the philanthropist had
suffered a loss in the sense he didn’t receive the bargain for which he contracted.
Lord Millett ( at 558) critical of ‘ the narrow accounts’ balance sheet quantification of
loss which measures the loss suffered by the promise by the diminuition in his
overall financial position resulting from the breach’. The difficulty is Lords Goff and
Millet in Panatown. He stated Loss @ 534 while a breach of contract ‘ may cause a
loss.. it is not in itself a loss in any meaningful sense’ and he added a ‘ failure in
performance of a contractual obligation deosnt entail a loss of contractual obligation
doesn’t entail a loss of the bargained for contractual rights’
- Lord Griffiths approach in Linden Gardens was correct.
- Lord Jauncey the 3rd judge in the majority ( @ 574) he agreed with Lord Goff’s
rejection of the ‘propostion the employer under a building contract is unable to
recover substantial damages for breach of the contract if the work in question is to
be performed on land or buildings which aren’t his property’ but added the
employer’s right to substantial dmages will depend upon ‘ whether he has made
good or intends to make good the effects of the breach’ – key issue if the
circumstances in which the courts will award to the claimant ‘ cost of cure’ damages

- Ruxley Electronics and Construction Ltd v Forsyth- the claimant builders agreed to
construct a swimming pool for the defendant. In breach of contract, the claimant
built the pool to a depth of 6 feet when its depth should have been seven foot 6
inches. How should damages be asseesd? Initially the trial judge measured the
diminuition in value as zero but the cost of the cure was found to be £21,560.
- Lord Mustill at 360- ‘ a common feature of small building works performed on
residential property the cost of the work is not fully reflected by an increase in the
market value of the house, and comparatively minor deviations from specification or
sound workmanship may have no direct financial effect at all’
- Mustill conceded make part of the builder’s promise ‘illusory’ because there would
be no adequate remedy available to the consumer in the event of breach. He noted
it would be equally unsatisfactory if the law were to jump to the conclusion damages
were necessarily to be assessed on a cost of cure basis because the cost of cure
might not accurately reflect the loss which the innocent party had suffered either.
- Mustill- ‘ there was only one, namely ‘ the loss truly suffered by the promise’
- In the case, the loss which the defendant had suffered was the dissapointemnt
which he had experienced in not getting a swimming pool of the correct
specifications and that loss was best reflected in an award of ‘ loss of amenity
damgages’ of £2500.

- Lord Lloyd @ 372- the intention of the innocent party is not relevant to the issue of
reasonableness. Where the innocent party is not genuine in his desire to carry out
the repairs- this will be a factor which counts against the award of the cost of cure of
damages- this is because a party cannot be ‘ allowed to create a loss, which does not
exist, in order to punish the party in breach for its breach of contract’
- Vital test is the reasonableness test- intention of the parties is only one factor to be
considered when resolve that issue.

- P338
The restitution interest

- Can C seek the protection of his restitution interest rather than his expectation
- The answer is a C doenst have a gree choice between the two measures
- C can obtain a restitutionary remedy only when he can establish the D was enriched,
the enrichment was at the C’s expense and it is unjust the D retain the benefit
without recompensing the C- two grounds- failure of consideration and enrichment
by subtraction.

Failure of consideration and enrichment by subtraction

Reliance interest

- C may wish to claim the protection of his reliance interest so he is put in the position
which he would have been in had not entered into a contract with D- e.g- may have
wasted expenditure in the performance of the contract prior to its termination and
want to recover that expenditure
- A claim of this nature seems to be different in principle from a claim to recover
expectation damages
- Omark Martime Ltd v Mamola Challenger Shipping Co- Tear J at 47 said ‘ the
expectation loss principle underpins the award of damages wasted expenditure
cases’ and at 42 rejected the submission reliance losses are ‘ fundamentally
different’ from expectation losses and they are awarded on a ‘ different juridical
basis of claim’. On the contrary, he had held they are a ‘species of expectation
losses’ on the basis ‘ the expenditure which is sought to be recovered is incurred in
expectation that the contract will be performed’
- Trietel (1992)- ‘ doubtfully consistent with experience on the basis ‘ unprofitable
contracts are by no means as uncommon’ as the supporters of this assumption seem
to suggest.
- Both agree C’s entitlement to recover reliance damages is subject to the limit they
cannot be recovered to the extent the D can prove the expenditure would not have
been recovered had the contract been performed according to its terms. T
- CCC Films ( London) Ltd v Impact Quadrant Films- if C has an unfettered right to
choose whether to claim or loss of bargain damages or for wasted expenditure.
- The general right to elect is subject to an excpetion where C seeks to recover his
reliance loss in an attempt to escape the consequences of his bad bargain.
- C and P Haulage Co Ltd v Middleton [1983]- C was given a licence to occupy premises
on a renewable 6 monthly basis. He spent $$$ on improving the property, even
though it was expreslly provided in the contract the fixtures were not to be removed
at the end of the licence.
- P346
- The D ejected the C from the premises in breach of contract and the C sought to
recover as damages the cost of the improvements which he had carried out to the
property. His action failed on the ground the breach had not caused him any loss he
would have been in the same position had the contract been terminated lawfully.
The COA held the C’s loss did not flow from the breach but from the fact he had
entered into a contract under which he had agreed he would not be able to remove
the fixtures at the end of the lease. It was held C couldn’t recover his losses where
that would enable him to scape from his bad bargain or would reverse the
contractual allocation of risk.

- Anglia Television Ltd v Reed- C engaged the D to star in a film which they were
making. At the last moment D repudiated the contract and the C’s had to abandon
the fil because they were unable to find a replacement actor. Lord Denning- ‘ where
the C claimed their loss of expenditure, they were not limited to expenditure
incurred after the contract was concluded but they could also claim for expenditure
incurred before the contract was concluded provided it was within the reasonable
contemplation of the parties it would be likely to be wasted as a result of the D’s

- Such pre-contract expenditure could not be regarded as part of C’s expectation

interest on the facts of the case, because the C decided not to claim their loss of
profit on the ground they could not say what loss of proft would have been.
- Chaplin v Hicks- D, by his breach of contract, denied the C the opportunity to
participate in a beauty contest. Jury awarded her damages of £100 to represent her
loss of a chance to win the contest of the CA upheld the award.

The date of the assessment

- P347
- One very important points relate to the date on which damages fall to be assessed.
- Johnson v Agnew- damages are to be assessed as at the date of breach.
- Not an inflexible rule- Golden Strait Corp v Nippon yusen kubishika kaisha
- Underlying principle – is the aim of an award of damages is to put the C in the
financial position which it would have been had the contracat been performed
according to its terms; is to say, the C is entitled to recover damages representing
the value of the contractual benefit of which it has been deprived. This is met in
most cases by assessing damages at the date of breach. Wont be achieved in all
- Exceptional cases- damages need not be assessed as at the date of breach.
- Where C is unaware of the breach, damages will generally be assessed as at the date
on which C could, with reasonable diligence, have discovered the breach.
- Where it is not reasonable to expect the C to take immediate steps to mitigate his
loss, the date of assessment will be postponed until such time as it reasonable to
expect the C to mitigate his loss- Radford v De Froberville
- Where between the date of the breach and the time of trial an event has occurred
which inevitably would have reduced the amount of damages which the C could
have recovered in respect of its future losses, it has been held that amount of
damages which the C could have recovered in respect of its future losses, it has been
held that account had been taken of the occurrence of the later event for the
purpose of reducing the damages payable to the C on the ground the court were to
disregard the event which has occurred, it would overcompensate the C.
- In such a case, the commitment to the compensation principle trumps the general
rule damages are assessed as at the date of breach ( Golden Strait Corp v Nippon

The commitment to the protection of the expectation interest

- The law of the contract is to put the innocent party in the position which he would
have been in had the contract been performed, there a number of doctines and
rules which weaken the commitment of the law of contract to the protection of the
expectation interest.


- A claimant is under a ‘ duty’ to mitigate his loss

- Not under a duty- doesn’t incur any liability if he fails to mitigate his loss
- C is entirely free to act as he thinks fit but, if he feels to mitigate his loss- unable to
recover that potion of his loss which is attributable of his failure to mitigate.
- There are 2 aspects to the mitigation doctrine.

- First is the injured party must take all reasonable steps to minimse his loss.
- The C isn’t required to ‘ take any step which a reasonable and prudent man woulnd
not ordinarily take in the course of his business’- British Westinghouse Co v
Underground Electric Ry Co, 689- he is only obliged to take reasonable steps to
minise his loss.
- Therefore- where a seller fails to deliver the goods, the buyer must generally go out
into the market place and purchase substitute goods. But a C generally go out into
the marketplace and purchase substitute goods. But C need not take steps which
would embroil him in complicated litigation- Pilkington v Wood nor is he required to
put his commercial reputation at risk ( james finlay & co ltd v wkik hoo tong)
- He may, however be required to consider an offer of substitute performance by the
party in breach ( the soholt, 605). In this case- at first instance went on so far to state
that innocent party
- P348
- in the Solholt, Staughton J- the first instance went so far as to state the innocent
party might be required to make an offer of subsitutte performance to the party in
breach. The latter step seems to be a step too far because, if it is correct, it would
effectively render the right of the innocent party to terminate further performance
of the contract illustory. The second aspect of the mitigation doctrine is the C must
not reasonably incur expense subsequent to the breach of contract.
- Atiyah- the doctrine of mitigation ‘ does in practice make an enormous tent in the
theory that the promise is entitled to full protection for his expectations’. The reality
is the bindingess of executory contracts protects not the expectation of
performance, but the expectation of profit; and even is only protected so long as the
promise cannot secure it elsewhere.
- Read other shit


JC’s Smith the law on contracts by paul s davies - p402

the relaitonship between Hadley v Baxendale and The Achilleas- Hadley v Baxendale
remains good law, because it is one of the ratios for the Achilleas. Lord Walker supported
both the approach based upon Hadley v Baxendale favoured by Lord Rodger and Baroness
Hale and also the new approach adopted by Lord Hoffman and Lord Hope. As a result- a
majority of the HOL endosed Hadley and the majority also endorsed the " assumption of
responsibility" view. This is an unusual situation. In the case @ [40]- " the orthodox [ Hadley
v Baxendale] appraoch remains the general test of remoteness applicale in the great
majority of the cases. However, their may be ' unusual' cases, such as The Achilleas itself, in
which the context, surrounding circumstances or general circumstances in the relevant
market make it necessary specifically to consider where there has been an assumption of
responsibility. This is most likely to be in those relatively rare cases where the application of
the general test leads or may lead to an unquantifiable, unpredicatable, uncontrollable or
disporportionate liability or where there is clear evidence such a liability would be contrary
to market understanding and expectations. - this is sensible. You should start with the
Hadley v Baxendale principles then apply the ' assumption of responsibility' cases in the
relatively rare cases. In SC Confectia SA v Miss Mania Wholesale Ltd, @ [26] - the Achilleas
test only seems to apply to cases which fall in the second limb of Hadley v Baxendale, and
not the first. It seems Hadley v Baxendale remains the ' standard rule' which can be
displcaed ' if, on examining the contract and the commercial background, it can be said the
loss within the question is within the scope of contractual duies'- 2014 EWCA CIV 1848 [25].
SO a wider range of losses may now fall within the scope of losses which arent too remote
because D assumed responsibility for them- Supershield.

- Zwach’s expectation interest wont be proctect where the loss is too remote.
Although they allege it is a defect in the facility or poor maintenance levels, they will
not be protected if it is a consequence of Jone’s breach.
- The general test is they may only be able to recover the losses which were within the
reasonable contemplation at the time.
- Main test is in Hadley v Baxendale. Although there is the recent case of Transfield
Shippin Inv- the ratio of the decision is unclear and the case seems to add a new test
which asks whether the defendant assumed responsibility.

- C’s expectation interest will not be fully protected where some of the loss which he
has suffered is too ‘ remote’ a consequence of the defendant’s breach of contract.
- The doctrine limits the right of the innocent party to recover damages to which he
would otherwise be entitled
- The principal justification- for the existence of the doctrine it would be unfair to
impose liability upon a D for all losses- no matter how extreme or unforeseeable
- General test – the c can only recover in respect of losses which were within the
reasonable contemplation of the parties @ the time of entry into the contract.
- Transfiel Shipping Inc v Mercator Shipping Inc ( The Achilleas)- the Ratio of the
decision is undlear. Secondly, the case seems to add a new test which asks whether
the d has assumed responsibility for the loss in qu/
- Hadley v Baxendale- a shaft in the C’s mill broke. The D carriers agreed to carry the
shaft to Greenwich so it could be used as a pattern in the manufacture of a new
shaft. In breach of contract- D delayed the reutnr of the mill shaft and consequently,
production was halted at the C’s mill. C sought to recover their loss of profts as
damages for breach of contract. Alderson B held- ‘ where two parties have made a
contract which one of them has broken, the damages which the other party ought to
receive in respect of such breach of contract should be such as may fairly and
reasonably be considered either arising naturally, that is, according to the usual
course of things, from such breach of contract itself, or such as may reasonably be
supposed to have been in contemplation of both parties, at the time they made the
contract, as the probable result of the breach of it.

- The test is divided into 2 parts – not ‘ mutually exclusive’- Jackson v Royal Bank of
Scotland [25], [46]-[49]- the first is the defendant is liable for such losses as occur ‘
naturally’ or as a result of the ‘ usual course of things’ after such a breach of
- To qualify as a loss which as occurred ‘ naturally’ there must have been a ‘ serious
possibility’ or a ‘ real danger’ or a ‘ very substantial’ probability the loss would occur-
Koufos v C Cazarnikow Ltd ( The Heron II) – the D who agrees to supply or repair a
chattel which is obviously being used for profit making purposes is liable for the
ordinary loss of profits suffered as a result of his failure to supply or repair the
chattel which is obviously being used for profit-making purposes is liable for the
ordinary loss of profts suffered as a result of his failure to supply or repair the chattel
timeously ( Fletcher v Tayleur)
- Why could the C not recover their loss of profits in Hadly v Baxendale- the stoppal of
the mill was not a ‘ natural consequence of the carrier’s delay- c might have made a
spare shaft which would have kept the mill in production while the new shaft was
being made. It has also been held a D who supplies a commodity for use in a
complicate construction or manufacturing process is not to be assumed, merley
because because of the order for the commodity, to be aware of the details of all the
techniques undertaken by the C and the effect of any failure of or deficiency in the
commodity supplied ( Balfour Beatty v Scottish Power plc 1994 SLT 897). The onus in
the latter case is upon the C to bring information of this nature to the attention of
the D prior to entry into the contract. This takes us to the 2 nd limb of Hadley v
- P350
- Under the 2nd limb- a D may be liable for losses which did not arise ‘ naturally’ but
were within the reasonable contemplation of both parties at the time they made the
contract. This test was not satisfied on the facts of Hadley v Baxendale- because
although the C were aware of the consequences of delay, they had not informed the
D that delay would result in the halting of prodiction and so the loss could not be
said have been in the reasonable contemplation of both parties.
- D must know the special circumstances ( Simpson v North London Western Rly Co
and Seven Seas Properties Ltd v Al-Essa)- some suggestion in the case law the C must
go further establish the D agreed to assume liability for the exceptional loss – Horne
v Midland Rly

- Distinction between losses which arise ‘ naturally’- and are within the first limb of
Hadley v Baxendale and ‘ special losses.
- Within the second limb- is illustrated by the case of Victoria Laundry ( Windsor) Ltd v
Newman Industries Ltd.
- D knew C wanted to put the boiler into immediate use in their laundry business.
Boiler was delivered 5 months late. C sued to recover the loss they had suffered as a
result of the late delivery. COA- D were liable for the loss of profits which flowed
naturally from their breach of contract. But the D weren’t liable for the loss of profits
on some exceptionally lucrative contracts which the C’s had entered into with the
Ministry of Supply. The D didn’t know of the existence of these contracts and so the
loss of profit on these contracts wasn’t within the reasonable contemplation of both
parties. However, the COA hadn’t escaped criticism- largely on the ground the only
difference between two losses was one of extent, not kind, and the law doesn’t
generally require the extent of the loss be foreseen.

- Brown v KHMR Services- Stuar Smith @ 620 and 621 and Hobhouse LJ @ 640-43-
offered different reasons for distinguishing it. It is suggested the law cannot ignore
the extent of the economic loss in contract cases because parties enter into a
contract to make a profit, so the kind of loss is always be foreseeable. If the extent of
the loss of profit were irrelevant there would no adequate control device to keep
liability within reasonable bounds. The courts are entitled to distinguish between ‘
ordinary loss of profits and ‘ exceptional’ loss of profits or between ‘ ordinary’
consequential losses and ‘ exceptional’ consequential losses- hard to distingjish
between these categories on certain facts.

- Effect of the 2nd of the test established by Alderson B is to encourage contracting

parties to disclose prior to the entry into the contract exceptional losses- which may
be suffered as a result of the breach.
- In the Victoria Laundry case- the C suffers an unusually large loss, he will be unable
to recover that loss unless he draws it to attention of the D at the time of
contracting. The rule – encourages risk sharing; it enables the parties to asses the
scope of their likely liablity in the event of the breach. In this way, it may induce
them to take greater steps to ensure a breach isn’t committed ( it may also
encourage them to take out appropriate insurance cover should be committed)

- While it cant be said the courts didn’t experience any difficulty in applying the 2
limbs of Hadley v Baxendale to the factos of particular case, it can be said the tests
were well known and there was a significant body of case law upon which the courts
could draw when deciding new cases.

- in this sense, the law was well established and well understood.
- P351
- The Achilleas- a charterer of a vessel redelivered the vessel 9 days late- and as a
result, the owners of the vessel had to agree a reduced rate of hire for the follow on
time charter. The owners claimed their loss on the follow on charter amount to
$1,364,584 ( consisting of $8000) per day for the 191 days of the follow on charter)
which they sought to recover from the charterers. The charterers submitted their
liability was limited to $158,301.17. being the difference between the market and
the charter rates of hire during which the owners were deprived of the use of the
ship. THE HOL- the chartere’s liability was confined to the latter figure. While they
agreed in the result, two distinct lines of reasoning can be detected in their speeces.
- First approach- HOL was to ask if the charterers had, objectively assumed
responsibility for the loss in question. This approach was adopted most clearly by
Lord Hoffman but is also evident in the speech of Lord Hope . On this approach, the
vital question is to ask if the loss for which compensation is sought is of a ‘kind’ or a ‘
type’ for which the contract breaker ought fairly to be taken to have accepted
- The present case- Lord Hoffman and Hope- the charterers had assumed
responsibility for 9 day delay in returning the vessel but they could neither control
that loss nor quantify it. – encourage D to take the point they cannot be liable for the
loss in question because they did not objectively assume responsibility for it.
- Argued this objection has little force because the objective approach the vital
question to ask is whether the loss for which compensation is sought is of a ‘kind’ or
a ‘type’ for which the contract breaker ought fairly to be taken to have accepted
- Talked about the law of tort relating to the scope of the duty of care ( associated
with the speech of Lord Hoffman in South Australia Asset Management Corp v York
Montague)- into the law of contract more generally.
- Attraction lies the presumed intention of the parties- enables the court to conclude
a aprty isn’t liable for foreseeable losses because they aren’t a type or kind for which
the contract breaker can be treated having assumed responsibility.
- Lord Hoffman and Hope- the charters had assumed responsobilty for the entirety of
the follow on charter because the could neither control that loss or quantify it.
- Approach has attractions- might be hard to operate in practice because it will
encourage the defendants to take the point they cannot be liable for the loss in
question because they didn’t objectively assume responsibility for it. – may be
argued this objection has little force because the objective approach to agreement
plays such a central role in the law of contract- shouldn’t create any particular
difficulties when applied in the present context. – answer ‘ understanding the
shipping market.. that liability was restricted to the difference between the market
rate and the charter rate for the overrun period’
- Hope and Hoffman- the parties had contracted by reference to that understanding
for the entirety of the shipowner’s loss.
- But the test is likely to be more difficult to apply in cases where there is no such
clear market understanding.
- P352
- Second approach- adopted by Lord Rodger and Baroness Hale was more orthodox.
They concluded neither party would reasonably have contemplated an overrun of 9
days would ‘ in the ordinary course of things’ cause the shipowners the kind lof loss
for which they claimed damages. The loss was not an ‘ ordinary consequence’ of the
breach but occurred because of the ‘ extremely volatile market conditions’ which
resulted in the excessive loss suffered by the shipowners- the loss was too remote to
be recoverable.
- The loss which the shipowners suffered was a loss of profit on the follow-on charter
and was the very loss which the parties could have foreseen. What could not be
foreseen was the extent of that loss but the law has generally taken the view is the
kind of loss that must be foreseen- not its extent
- The latter principle was not challenged by Lord Rodge or Baroness Hale and so it
must be assumed they proceeded on the basis of a very narrow definition of the
type of loss foreseeable by the paeties.
- Lord Walker- found the analogy drawn by Lord Wilberforce with the ‘ assumption of
responsibility’ cases in tort to be ‘ helpful’ bust stopped shortly of positively
endorsing it in a contractual context. But he also stated the parties had not
contracted on the basis the charterers would be liable for ‘ any loss, however large,
occasioned by a dealy in re-delivery in circumstances where the charterers had no
knowledge of, or control over the new fixture entered into by the new owners’

- Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd- Hamblen J at [39] that Lord
Walker’s agreement with both approaches meant the ‘ rationale of assumption of
responsibility’ had the ‘ support the majority’. Hamblen J said the Hadley v
Baxendale approach ‘ remains the general test of remoteness applicable in the great
majority of cases’. The assumption of responsibility test, by contrast, is likely to be
invoked in the minority of cases ‘ where the application of the general test leads to
an uquantifiable, predictable, uncontrollable or disproportionate liability or where
there is clear evidence such a liability would be contrary to market understanding
and expectations’ – on this basis it will not be necessary in most cases for the court
to consider the assumption of responsibility test because ‘ the fact the type of loss
arises in ordinary course of things or out of special known circumstances will carry
with it the necessary assumption of responsibility’

- On the facts of the Achilleas it operated to limit the liability of the D.

- The Achilleas- operated to limit the liability of the defendant.
- Supershield Ltd v Siemens Building Technologies- Toulson LJ at [43]- the test has an ‘
inclusionary’ as well as an ‘ exlcusionary’ effect he stated- “ if, on the proper analysis
of the contract against its commercial background, the loss was within the scope of
the duty, it cannot be regarded as too remote, even if it would not have occurred in
ordinary circumstances’
- On the facts of the case- it was held the loss was not too remote because the d had
assumed responsibility for the loss in q – notwithstanding the fact it was unlikely to

- In negligence- if a damage is too remote a consequence of the d’s breach of duty

where the kind of damage which C has suffered wasn’t reasonably foreseeable by D (
the wagon mound)

- Despite suggestions that reasonable foresight of loss is also determining factor in

contractual action – established in Heron II the remoteness test in contract is
narrower than the remoteness test in tort because a higher degree of probability is
required in order for the loss to be within the reasonable contemplation of the
parties at the time of at the time of entry into the contract.

- Difference is one of the degree – not kind.

- Lord Denning in H Parsons- he argued in realtion to physical damage cases, the
remotenss test was the same in contract and tort. Although Lord Denning was in the
minority in Parsons, it must be noted Scarman LJ did state it would be absurd if the
amount of damages recoverable were to depend upon whether the C’s cause of
action was in contract in tort. Issue awaits clarification by the HOL.
- Henderson v Merrett Syndicates, 185, Lord Goff stated ‘ the rules as to remotenss of
damage.. are less restricted in tort than they are in contract’.
- While this is generally true- it is suggested- where the parties are in a contractual
relationship, the C shouldn’t be allowed to have resort to the wider tort rules.
- The rationale for having a wider shpphere of liability in tort is C in a tort action don’t
gneeraly have the opportunity to disclose unual losses, as contract C’s do.
- Where the parties has had the opportunity to disclose any unusual losses and so he
should not be allowed to avail himself of the wider tort rule- Robertson Quay
Investment Py Ltd v Steen Consultants Pte Ltd


- A C cannot recover damages in respect of the loss which he has suffered if he cannot
establish a casual link between his loss and the D’s breach of contract.
- The D’s breach need not be the sole cause of the loss to the C- MUST be a cause of
the loss
- For example, independent act of a 3rd party may break the chain of causation
between D’s breach of the C’s loss unless the D has actually promised to gaude
against the very thing which has actually happened ( London Joint Stock Bank v

- Natural events may also break the chain of causation,- Monarch Steamship Co v
Karlmshamns- D ented into a contract in April 1939 to carry goods from Manchuria
to Sweden. In breach of contract- the D failed to provide a ship which was
seaworthy. This resulted in a delay in voyage so the ship failed to get to Sweden
before the outbreak of War in September 1939. As a result of the outbreak of war
the ship was ordered to a Scottish port where the goods had to be transferred to
neutral vessels before being shipped to Sweden. The C had to pay the cost of the
transport in the neutral vessels and they sought to recover the sums paid as
damages for breach of contract. The D argued the outbreak of war broke the chain
of causation between their breach of contract and the cost incurred by the C in
shipping the goods to Sweden in neutral vessels.
- The argument was rejected by the HOL on the ground the outbreak of war was a
likely event at the time the contract was concluded in April 1939- could not be held
to amount to a break in the chain of causation between the supplier’s breach of
contract and the ‘ loss’ suffered by the farmer in having to pay damages.

- Where the C has been negligent and this has contributed to the damage which he
has suffered- but it is not sufficient to break the chain of causation- the question
arises if the damages payable to the C can be reduced under the Law Reform (
Contributory Negligence) Act 1945.
- The vexed issue
- Answer depends upon the nature of the obligation which the D has broken.
- 3 different contractual duties must be carefully distinguished .
- first- a breach of a strict contractual duty
- the second- breach of a contractual duty to take care which isn’t the same as a
common law duty to take care
- third is a breach of a contractual duty of care where a breach also is a tort.

- CN can operate as a defence in the third category – but not in the first 2 (
Forsikiringsaktieselskapet Vesta v Butcher and Barclays Bank plc v Fairclough

- May result in overcompensation of the C as no reduction is made to reflect C’s

contribution to the loss which has arrisen