Analysis of foreseeability of damages through case commentaries

Analysis of foreseeability of damages through the case commentaries of Hadley v Haxendale and Victoria laundry v Newmann Industries

Victoria Laundry Ltd v Newman Industries Ltd [1949] 2 KB 528

Introduction 

 A very important  aspect that needs to be analysed is addressing the question as to how to assess the damages in the situation of breach of contract to that extent which can be recovered for losses such as inconvenience and disappointment.  This commentary will try to ascertain whether it is legible to award damages to the extent as to compensate extra losses suffered due to the breach of contract.

Victoria Laundry Limited had ordered a boiler from the respondents who were were aware of the nature of business conducted by the petitioners. However the delivery of the boiler was delayed by almost 5 months and hence the petition for breach of contracts. They claimed for damages suffered for the loss of profit  due to the delay. Since it was known that the petitioners intended to put the boiler to use as soon as it was delivered, showed that these losses suffered were foreseeable reasonably if ever the breach was to happen. Respondents claimed that the damages were not reasonably foreseeable and the loss of profits amounted to a special circumstance

Background

In the case of Watts V Morrow, it was prescribed by public policy to compensate for such losses, unless the object of such contract was ‘ peace of mind’ or ‘pleasure’ , or breach caused foreseeable inconvenience to the victim. But the guidelines issued by this case are scant in regard to what the underlying rationale was in regard to the general rule or the exceptions for the said rule.

Analysis

The general rule of law is that the defendant is liable only for those consequences which are not too remote from his conduct. The rationale is to draw a line as to what extent the wrongdoer can be held liable for his actions. The defendant is held liable for the acts and such consequences which are not too remote but proximate. According to the test of reasonable foresight, defendant is held liable only for such consequences which can be foreseen by a reasonable man. This was used in the cases of Rigby V hewitt( 1850) and Greenland V Chaplin.

In the Victoria laundry case, the court made the distinction of losses from ‘ particularly lucrative dyeing contracts’ to be a different type of loss which could only be recoverable in the situation where the defendant had sufficient knowledge about the contract, enough to put the liability in them. This court also distinguished between the breach of tort and breach of contracts. Under breach of contract, the aggrieved party can recover those losses suffered  which could be reasonable foreseen at the time of making the contract, whereas tort, reasonable foresight is used at the time of commission of the tort. This rationale by the court should be commended as there is no void in the law for the  party that committed breach to be held liable for unforeseen circumstances even though it is directly related to the breach of contract. But this cannot cover up the liability in the case where one party is versed with the special circumstances under which the contract is made. So this rationale also provides for preventing the misuse of this provision by parties trying to escape liability. In the sally wertheiin case(1911), judge asquith said that it was well settled that the rationale that governed damages is to put that party whose right has been violated in that position(in terms of monetary situation) if his right had not been violated. It was said that this would provide him for a complete indemnity of the loss resulting from the breach. The writer would like to critique this by putting forward that circumstances can alter the monetary situation of he contract and hence is in disagreement with this judge asquiths  view.

Conclusion

However the Victoria laundry case, puts forward precedents to see that the breacher of contract is not made more liable than he should have been and the aggrieved party is compensated for the loss suffered due to breach of contract.  But it needs to be emphasised that more burden should be placed on the party that breaches the contract because this situation of debating how much losses can be recovered only arises because of breach of contract. Hence the rationale of special knowledge should be applied in a case to case basis and should be used very sparingly. Even removing this provision does not do any harm. It will then make parties to see to that they should  fulfill the contract and not commit breach.

Hadley v. Baxendale[1854] EWHC J70

INTRODUCTION

The breach of contracts occurs in a situation where one party refuses or fails to perform his part of the contract. He has breached his obligation to perform the contract. When there occurs a breach of contract, the party who has suffered losses can file a suit to recover the damages suffered due to the breach. The principle states that the damages suffered should arise naturally from the usual course of events and should  be something that the parties would have known to be a result of such breach. In short, the damages suffered should be reasonably foreseeable. The issue again in question is whether what can be considered reasonably foreseeable. It is important to analyze this as the compensation that is to be paid is directly linked to the reasonable foreseeability.

In this case of Hadley V baxendale, the petitioners cornmill stopped functioning as the crankshaft was broken and needed to be replaced. The defendants delivered the shaft almost a week late due to which the petitioners could not open their mill that full week and incurred losses for the same. They claimed 25 pounds in damages suffered and the court awarded it. The defendants challenged the same saying that they were in fact not aware that the mill was inoperable till they fulfilled their contractual obligations and hence cant be held liable for the damages suffered as they were not reasonably foreseeable. The court allowed this appeal and didn’t let the petitioners claim damages citing the reasons of unforeseeability of damages.

Analysis

Judge Alderson observed that if the special circumstances under which the contract had been formed was informed, then the damages suffered would arise and flow reasonably. If both the parties were aware of the special circumstances, then the recovery of  damages suffered could  have been mentioned in the terms of the contract itself. Although the author agrees with this line of reasoning, it should also be noted that more burden is put on the aggrieved party than necessary,  even though the breach has not been caused by him. This puts the aggrieved party at a disadvantage not allowing sometimes reasonable damages to  be recovered only because the ‘special circumstances’ had not been mentioned at the time of contract. The court said that just because the party asked shaft to be delivered on a particular date, does not imply that it will suffer losses in case of such a breach; it could in fact be reasonably believed that the mills would have a backup shaft in case of such technical problems. The writer would want to point out that there could be a sufficient reason for fixing a particular date and not allowing the petitioners to recover lost profits, in a way removes the incentive for the breaching party to follow the contractual obligation of time. The breaching party is not penalised in any way for breach of contract, if in fact all the damages suffered is in terms of loss of profit. By asking the defendants to pay for their act of negligence in time of delay would have set a precedent for other cases putting the onus on the parties to not breach their contractual obligations.

In fact the traditional test to decide the remoteness of damages has been put forward in this case.this test is less definitive in nature and more of a test covering a broad range of tests. This test analyses what a reasonable man would find foreseeable. The information enforcing rule is what was established in this case. In further contracts cases with the same subject matter. This case is found significant in american law and has been cited in important cases like telegraph co v Hall  and howard v manufacturing co. Robert Goff stated that the principle set forward by this case was a fons et origo of modern law.

Conclusion

The reasonability foreseeability principle that has been set up in this case, has over time strengthened and broadened, and the damages that is recoverable is based on the degree of the special knowledge held by the parties at the time of contract. It is obviously debatable as to what a reasonable man would or could foresee, which in a certain way brings about its own bouts of ambiguity. The writer would also like to add that setting forward explicit provisions regarding the route to be followed in case of breach of contracts in the contract itself, would save the court a lot of tussle and hassle in trying to figure out what was reasonably foreseeable and what was not. Of course the special knowledge rationale cannot be ignored and is considered apt in trying to decide foreseeability, but there exists no mechanism to punish a party to set an example as to what would happen in the case of breach. Then parties would put a lot of thought into thinking whether to commit breach of contract.

Author: Palguna M,
School of Law Christ University 2 year