Hadley v Baxendale (1854) 9 Exch. 341

Key point

For damages to be recoverable, the loss must be:

  1. foreseeable by a reasonable person having knowledge of the ordinary circumstances or
  2. foreseeable by a reasonable person who has knowledge of special circumstances which had been communicated to the defendant.

Facts

  • C’s mill in Gloucester was brought to a standstill by a broken crank shaft
  • C engaged D carriers to carry the broken crank shaft to engineers in Greenwich to act as a mold for a new one
  • Instead of delivering in one day it was delivered in several resulting in a loss of profits

Held (Court of Exchequer)

The loss of profits is not recoverable in damages.

Alderson B

Rules of remoteness

  • The first rule is that damages should either arise naturally, according to the usual course of things such from the breach or be reasonably in the contemplation of both parties to be the probable result of breach at the time they made the contract
  • The second rule is that if there were special circumstances communicated from C to D, damages which could be reasonably contemplated would be the amount that would follow from those special circumstances

Current case

  • The first rule did not apply as in ordinary circumstances, the loss would not have flowed naturally from the breach of contract. In most cases the mill would have a backup shaft and the loss of profit would not have occurred
  • The second rule did not apply either as the special circumstances which would have made the breach a reasonable and natural consequence of breach was not communicated to or known by D