Measure of Damages – locus classicus
The Facts
Buyers, launderers and dyers, contracted with suppliers, an engineering concern, for the manufacture and installation of a boiler.
Suppliers were aware of the boiler’s intended use and told expressly that haste was required.
Suppliers delivered considerably late and buyers claimed loss of profits.
Findings
Streatfeild J awarded only nominal damages.
Asquith, Tucker and Singleton LJ awarded loss of profits.
Asquith LJ held as follows:
“What propositions applicable to the present case emerge from the authorities as a whole, including those analysed above? We think they include the following:-
(1.) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v. Chicoutimi Pulp Company). This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognized as too harsh a rule. Hence,
(2.) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably forseeable as liable to result from the breach.
(3.) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.
(4.) For this purpose, knowledge “possessed” is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the “ordinary course of things” and consequently what loss is liable to result from a breach of contract in that ordinary course. This is the subject matter of the “first rule” in Hadley v. Baxendale. But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses, of special circumstances outside the “ordinary course of things,” of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the “second rule” so as to make additional loss also recoverable.
(5.) In order to make the contract-breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. As has often been pointed out, parties at the time of contracting contemplate not the breach of the contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss in question was liable to result (see certain observations of Lord du Parcq in the recent case of A/B Karlshamns Oljefabriker v. Monarch Steamship Company Limited.)
(6.) Nor, finally, to make a particular loss recoverable, need it be proved that upon a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the same case, at page 158, if the loss (or some factor without which it would not have occurred) is a “serious possibility” or a “real danger.” For short, we have used the word “liable” to result. Possibly the colloquialism “on the cards” indicates the shade of meaning with some approach to accuracy.”
Commentary
Asquith LJ’s view is that the headnote of Hadley v Baxendale is misleading in that it recounts that the carrier was made aware of the millers’ special need for haste. Because Alderson B’s judgement does not deal in any great detail with the facts, it is an open question whether this fact was simply overlooked by the court in that case.
Streatfeild J drew a distinction between a part of the machine and the machine itself in deciding whether special circumstances were present. Asquith LJ rejected this distinction as meaningless.
It is lamentable that the reasoning in this case was not applied in the Achilleas.
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