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Accepted Responsibility of Contract-breaker

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Damages

Damages are the pecuniary recompense given by process of law to a person for the actionable wrong that another has done him. Damages may, on occasion, be awarded where the plaintiff has suffered no ascertainable damage: damage may be presumed.
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Damages, Remoteness of
Last updated: 21-Jun-2015

Hadley v Baxendale (1854) 8 Ex 341 per Alderson B:

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, 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.

Now, if the special circumstances under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated.

But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.

Per Lord Reid in Koufos v C Czarnikow Ltd (The Heron II), [1967] 3 All ER 686 at p.691:

In cases like Hadley v Baxendale or the present case it is not enough that in fact the plaintiff’s loss was directly caused by the defendant’s breach of contract. It clearly was so caused in both. The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.

Per Robert Goff, J in Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase), [1981] 1 Lloyd’s Rep 175, at p.183:

In some cases, the Courts appear to be prepared to take into account knowledge of special circumstances (i.e., circumstances outside the ordinary course of things) although such knowledge was not communicated by the plaintiff to the defendant - such as knowledge of the nature of the plaintiff’s business (see, e.g., Simpson v The London and North Western Railway Co., (1876) 1 Q.B.D. 274, and the Victoria Laundry (Windsor) v Newman Industries Ltd [1949] 1 All ER 997 case) or knowledge of the existence of a market (e.g., knowledge of the defendants in The Heron II that there was a market in sugar at the discharging port, Basra).

In other cases, however, the Courts appear to have considered that the special circumstances should have been specifically drawn to the attention of the defendant by the plaintiff - as in Hadley v Baxendale (1854) 8 Ex 341 and British Columbia & Vancouver Island Spar, Lumber and Saw Mill Co v Nettleship [1861-73] All ER Rep 339, both cases being concerned with a claim to damages by reason of the plaintiff’s factory being prevented from working on account of late delivery of a part of machinery by the defendant carrier. In the light of the decided cases, the test appears to be: have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of such breach. The answer to that question may vary from case to case, taking into consideration such matters as, for example, the nature of the facts in question and how far they are unusual, and the extent to which such facts are likely to make fulfilment of the contract by the due date more critical, or to render the plaintiff’s loss heavier in the event of non-fulfilment.


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