32

The dealer then breaches the contract and fails to deliver the car. Had
nothingofthis.
breached Vou would have sold the car on to DAMAGES
knows
thecontractnot had been make a profit of
dealer be liable for this £90,000 loss?
the
£90000 Will
that this loss is too remote. The car dealer
the basis
answer is no, on would not have
Theshort contemplated a loss of £90,000 following his breach of contract; he would only
reasonably
have contemplated a loss of £10,000. This is why the principles of remoteness are so
party in breach from unusual loss that may have in fact been
important;they acttto protect the
causedbythe breach but will be "too remote" as the losS Could not have been contemplated
the breach
saresult of

HADLEY VBAXENDALE
Thecontractual test of remoteness was laid down in Hadley v Baxendale (1854) 9 Ex.341. The
olaintiffs owned a flour mill and contracted with the defendants to deliver a replacement
nkchaft after the plaintiffs' crankshaft had broken. The contract was breached when the
dofondants failed to deliver the shaft within a reasonable time. The plaintiffs brought an
arion claiming the loss of profit whilst the millwas inoperable. The court clarified the relevant
test of remoteness of damage in contract law:

"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 suchbreach of contract
should be such as may fairly and reasonably be considered either arising naturally,
0e, according to the usual course of things, from such breach of contract itself, or
such as may reasonably be supposed to have been in the contemplation of both
parties, at the time they made the contract, as the probable result of the breach of it."

TThe two limbs of Hadley v Baxendale

On the facts of
breach of Hadley v Baxendale the plaintiffs were unable to recover any loss from the
not arise contract. The loss was not a natural consequence of the breach, as such loss would
spare according to the usual course of things. It was common practice for mills to keep a
the loss,crankshaft to Cover for Such instances. Nor did the defendants reasonably contemplate
as they did
shaft. On this basis not knoW that the mill was unable to operate without the replacement
the loss was toO remote and therefore irrecoverable.
While the
eIthateryonewe facts
of Hadley v unusual in relation to the loss suffered-not
can claim to be Baxendale are slightly
can take from this familiar with the trade practices of a mill-this
is exactly the point
natural y from the breach.case.ThiThe s first
wil limb
usuallyof Hadley
be uncontroversial as the straightforward
vBaxendale concerns loss that arises
wiprthincilossples of ccausation apply. However, the second limb of Hadley vBaxendale is concerned
that waS reasonably Contemplated by both parties at the time the contract was
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entered into. In order for such loss to be recoverable, the Court will have to assess the levol
DAMAGES
knowledge of both parties. If one party seeks to pass the risk of particular damage (which d
not naturally arise from the breach) then express communication must be made to the
party of this risk. Only in these circumstances can it be said that the other party weta
"reasonably contemplate" such loss.

Two limbs or a single test?

While the principles of remoteness stated in Hadley v Baxendale are conceptually guite
straightforward, there remained some unresolved issues as to how these principles are to he
applied to the particular types of loss. The root of the problem is that there appear to be hwn
distinct limbs to the rule of remoteness: loss that was a natural consequence of the breach
OR, loss that was reasonably contemplated. By introducing the word, "OR", the question
remained as to whether the court in Hadley v Baxendale had developed two distinct tests of
remoteness, or are these to be considered as one single test of remoteness?

The court sought to address this problem in Victoria Laundry (Windsor) Ltd v Newman
Industries [1949] 2 K.B. 528. In this case the plaintiffs owned and ran a laundry business. They
contracted with the defendants who were to supply a boiler. The plaintiffs required the boiler
by a specific date to allow them to meet a number of dyeing contracts they had obtained from
the Royal Navy (although they did not communicate this fact to the defendants). The
defendants delivered the boiler late andthe plaintiffs claimed damages for breach of contract.

The Court of Appeal held that the ordinary business loss the plaintiffs incurred by the late
delivery was recoverable, as such loss was a natural consequence of the breach. However, the
loss of the dyeing contracts was not recoverable. This loss did not arise naturally from the
breach, nor was it reasonably contemplated by the defendants as they had no knowledge of
the existence of such contracts.

It is perhaps useful to distil this decision into the ability to recover the type of loss in question:

1. Normal loss will be recoverable as it arises naturally from the breach.

2. Abnormal loss will only be recoverable if it was reasonably contemplated by both
parties at the time the contract was made.

To this extent it not particularly helpful to speak of tWo separate limbs of remoteness Of
damage from Hadley v Baxendale as in reality they are one and the same thing. The primary
focus is whether the loss was "reasonably contemplated" by both parties. As the reasonable
person will as amatter of course always contemplate the normal loss flowing from the breacn,
this losS will always be recoverable. However, in order for abnormal loss to be recoverable t
must be established that it was in the reasonable contemplation of both parties at the tme
the contract was formed. Therefore, in order for abnormal loss to be recoverable tne
knowledge of the both parties will be the key to determining whether the loss is too remote.