Damages cases
Award of damages in contract is compensatory not punitive.
An award of damages is normally to put claimant in same financial position would have been in had contract
been properly performed.
Aim: compensate innocent party, not to punish party in breach.
An award of damages seeks to put the c into position we would have been had contract not been breached. As
if contract has been performed. Award is to represent the loss of expectation under contract.
Two issues that will limit and determine the amount awarded:
(1) Remoteness of Damage (determines maximum amount recoverable)
(2) Measure of Damages (how the court calculates the actual award)
REMOTENESS
Claimant must prove causation, but not all consequences are compensate able. Courts don’t allow parties to
recover losses that are too remote from the breach of contract.
o Hadley v Baxendale (1854) 9 Exch. 341: causation must be established but not all loss will be
recoverable, test of remoteness in contract. Loss of profit not recoverable.
In order to be recoverable (not too remote) damages must be:-
(a) Damages .... such as may fairly and reasonably be considered as arising naturally i.e.
according to the usual cause of things, loss which was a natural consequence of the breach;
OR
(b) 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. Loss that was
reasonably contemplated by both parties at the time the contract was formed.
Damages recoverable under (a) often referred to as normal loss (damages arising naturally from breach).
Damages recoverable under (b) often referred to as abnormal loss, and usually rest upon the claimant making
special facts known to the defendant (damages in the reasonable contemplation of both parties).
Illustrated in:
o Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 1 All ER 997: Recovered for loss of
ordinary profits but not for lucrative dyeing contracts; defendants didn’t know about them – they
were not within their reasonable contemplation. Loss of business profits recoverable as this was held
to be normal loss, first branch applied. Loss was a natural consequence of the breach and
recoverable.
Problem - Asquith LJ said test reasonable Foreseeability (tortious test) and that test in Contract and Tort is the
same.
Normal loss is natural consequence would always be in the reasonable contemplation of parties.
Abnormal loss will only be in the d’s reasonable contemplation if they have knowledge of the loss.
Rejected by House of Lords in The Heron II [1967] 3 All ER 686
Contract test = reasonable contemplation (high degree of probability), not reasonable foreseeability (low
degree of probability).
Inter relationship of Contract and Tort tests further, if unsatisfactorily, considered by Court of Appeal in -
o Parsons (H) (Livestock) Ltd v Uttley Ingham & Co. Ltd. [1978] 1 All ER 525: Claimant claimed for
sickness and death of pigs, and loss of profits on future sales.
Lord Denning M.R.:- Hadley v Baxendale, Victoria Laundry v Newman, and Heron II distinguishable. Dealt only
with economic loss (loss of profits).
Where was physical harm tortious foreseeability test applied and cl. recovered for loss of pigs. Claim for loss
of profits on future sales failed under reasonable contemplation test.
Physical harm: reasonably foreseeable
Economic loss: reasonable contemplation
Award of damages in contract is compensatory not punitive.
An award of damages is normally to put claimant in same financial position would have been in had contract
been properly performed.
Aim: compensate innocent party, not to punish party in breach.
An award of damages seeks to put the c into position we would have been had contract not been breached. As
if contract has been performed. Award is to represent the loss of expectation under contract.
Two issues that will limit and determine the amount awarded:
(1) Remoteness of Damage (determines maximum amount recoverable)
(2) Measure of Damages (how the court calculates the actual award)
REMOTENESS
Claimant must prove causation, but not all consequences are compensate able. Courts don’t allow parties to
recover losses that are too remote from the breach of contract.
o Hadley v Baxendale (1854) 9 Exch. 341: causation must be established but not all loss will be
recoverable, test of remoteness in contract. Loss of profit not recoverable.
In order to be recoverable (not too remote) damages must be:-
(a) Damages .... such as may fairly and reasonably be considered as arising naturally i.e.
according to the usual cause of things, loss which was a natural consequence of the breach;
OR
(b) 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. Loss that was
reasonably contemplated by both parties at the time the contract was formed.
Damages recoverable under (a) often referred to as normal loss (damages arising naturally from breach).
Damages recoverable under (b) often referred to as abnormal loss, and usually rest upon the claimant making
special facts known to the defendant (damages in the reasonable contemplation of both parties).
Illustrated in:
o Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 1 All ER 997: Recovered for loss of
ordinary profits but not for lucrative dyeing contracts; defendants didn’t know about them – they
were not within their reasonable contemplation. Loss of business profits recoverable as this was held
to be normal loss, first branch applied. Loss was a natural consequence of the breach and
recoverable.
Problem - Asquith LJ said test reasonable Foreseeability (tortious test) and that test in Contract and Tort is the
same.
Normal loss is natural consequence would always be in the reasonable contemplation of parties.
Abnormal loss will only be in the d’s reasonable contemplation if they have knowledge of the loss.
Rejected by House of Lords in The Heron II [1967] 3 All ER 686
Contract test = reasonable contemplation (high degree of probability), not reasonable foreseeability (low
degree of probability).
Inter relationship of Contract and Tort tests further, if unsatisfactorily, considered by Court of Appeal in -
o Parsons (H) (Livestock) Ltd v Uttley Ingham & Co. Ltd. [1978] 1 All ER 525: Claimant claimed for
sickness and death of pigs, and loss of profits on future sales.
Lord Denning M.R.:- Hadley v Baxendale, Victoria Laundry v Newman, and Heron II distinguishable. Dealt only
with economic loss (loss of profits).
Where was physical harm tortious foreseeability test applied and cl. recovered for loss of pigs. Claim for loss
of profits on future sales failed under reasonable contemplation test.
Physical harm: reasonably foreseeable
Economic loss: reasonable contemplation
