Cases - Hadley v Baxendale

Record details

Name

Hadley v Baxendale

Date

[1854]

Citation

9 Ex 341

Keywords

Contract – breach of contract - measure of damages recoverable – remoteness – consequential loss

Summary

The judgment of Alderson B in this case is the foundation for the recovery of damages under English law. The decision in this case has been subsequently interpreted by the Court of Appeal in Victoria Laundry (Windsor) Ltd [1949] 2 K.B. 528, CA and by the House of Lords in The Heron (II) (1969) 3 All ER 686, [1969] 1 AC 350, [1967] 3 WLR 1491 [HL].

The consolidated rule is commonly stated as:

'Where two parties have made a contract that one of them has broken, the damages that the other party ought to receive in respect of a breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., 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.'

The rule therefore has 2 'limbs'. The claimant may recover for:

• loss arising naturally out of the breach (that is, in the ordinary course of things). As a reasonable person, the contract-breaking party is taken to know what this loss will be; or
• (in relation to special, abnormal or unusual loss), loss that could reasonably be supposed to have been within the contemplation of the parties, at the time of the contract, as the probable result of the breach.

This is important for the recoverability of costs in construction and engineering contracts for 2 reasons. The first limb assumes that the parties have knowledge of certain basic facts-general knowledge that any reasonable person in those circumstances can be assumed to have.

Defendants will therefore be held liable for damages that arise according to the usual course of things. The second limb requires additional specialist knowledge by the defendant, such as the possible occurrence of an unusual event or potential loss of an exceptional profit.

Losses that do not come within either of these limbs - such as exceptional losses, the potential for which is not made known to the defendant at the time that the contract is entered into - are not recoverable as damages, even though they may have been occasioned by a breach of contract. Such losses are said to be too remote.