Remoteness in breach of contract – test the same as in tort.
The Facts
A hopper for storing pig feed was sold and installed. Suppliers neglected to open a ventilation duct on installation. This caused the feed to become mouldy and poisonous to the recipient animals.
Findings
The facts and the applicable principles of law were contested in a trial before Swanwick J who found for the buyers.
The Court of Appeal (Lord Denning M R, Scarman and Orr LJJ) upheld the court of first instance.
On the question of remoteness, Lord Denning MR held that different tests had to be applied depending on whether the damage was physical or pure economic loss. In a former case, damage had to be foreseen as only a slight possibility – in the latter as a serious possibility.
Lord Denning MR professed not to be able to tell the difference between “contemplating” damage for breach of contract and “foreseeing” damage in tort (the distinction found to exist in Heron II).
Scarman and Orr LJJ did not follow Lord Denning MR on the physical/economic distinction but agreed with him on the semantic identity between contemplating and foreseeing damage.
Commentary
Scarman LJ’s judgement contains the following important insights:-
“I agree with [Lord Denning] in thinking it absurd that the test for remoteness of damage should, in principle, differ, according to the legal classification of the cause of action, though one must recognise that parties to a contract have the right to agree on a measure of damages which may be greater, or less, than the law would offer in the absence of agreement”.
“The general principle regulating damages for breach of contract is that where a party sustains a loss by reason of a breach of contract, he is, so as far as money can do it, to be placed in the same situation… as if the contract had been performed” – quoting Lord Pearce in Heron, in turn quoting Robinson v Harman.
Lord Scarman points out that Asquith LJ in Victoria Laundry Windsor (Ltd) v Newman Industries and Lord Pearce in Heron also considered there was no difference in principle between the test for remoteness in the two areas of law concerned.
The scepticism of the reality of the distinction drawn in Heron and even Lord Reid’s attempt to describe the degree of probability required for the test for foreseeability, seems to be justified. It ties in with Lord Wilberforce’s comment on the distinction between void and voidable contracts.
Also worth emphasizing is Lord Scarman’s recognition of the first principle in the measure of damages i.e. restitutio in integrum.
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