When considering whether a contracting party is liable for damages, the basic rule is held in Hadley v Baxendale (hereafter referred to as Hadley); whereby a mill was closed due to the delay of a carrier delivering a mill shaft. The primary governing rules state damages are recoverable under conditions where ‘the damage arise[s] “naturally, i.e., according to the usual course of things, from such breach of [the] contract itself?’ Secondly, that those damages because of special knowledge would have been in the contemplation of both parties, at the time they made the contract. Within the case Victoria Laundry (Windsor) Ltd v Newman Industries Ltd the rule in Hadley was transmuted to the composite test of ‘reasonably foreseeable as liable to result’. In this case the defendants agreed to provide a boiler for the claimant’s laundry business, however, this arrived five months late and so the claimants sued for lost profits. The case held ‘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 foreseeable as likely to result from the breach’. In addition, it held ‘Where knowledge of special circumstances is relied on, the assumption is that the defendant undertook to bear any special loss which was referable to those special circumstances’. The case of H. Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd (hereafter referred to as H. Parsons) gave foresight into the applicable remoteness test in concurrent liability. In the case the plaintiff was claiming for the financial loss associated with diseased and deceased pigs, alongside the potential future loss of sales of such pigs. It was held ‘only the type of damage need be foreseeable, not the exact extent of damage suffered’; therefore, the foresight that some physical damage was probable to the pigs was sufficient to establish serious physical damage. ‘Accordingly, liability is therefore, limited by a dual-limbed test: first, damage must arise naturally from the breach – in other words it must arise in the usual course of things; secondly, damage must reasonably be supposed to have been contemplated by, at least, the defaulting party, as the probable consequence of the breach. Liability rests, therefore on actual and imputed knowledge at the time the contract was made.’
Jackson v Royal Bank of Scotland (RBS) plc (hereafter referred to as Jackson), gave further insight into the distinction between the type and extent of loss, it can therefore be considered to have ‘partially clarified matters.’ In the case the claimant imported dog food from Thailand and sold it on to the customer, both claimant and customer banked with RBS. RBS accidently included an invoice of profits made by the claimant in the customer’s papers, resulting in the customer transferring their business directly to the supplier in Thailand. The claimants therefore sued RBS for their loss of future profits The House of Lords dismissed the Court of Appeal’s argument that a long relationship was unforeseeable, on the grounds that ‘If the type of damage, that is, loss of profit from continuing dealings, was foreseeable, it did not matter that the dealings would have continued for much longer than could have been foreseen.’ It was held in Jackson ‘If no cut-off point is provided by the contract, there is no arbitrary limit that can be set to the amount of the damages once the test of remoteness according to one or other of the rules in Hadley v Baxendale has been satisfied.’ The principle laid down in Jackson was applied in Transfield Shipping Inc. v Mercator Shipping Inc. (The Achilleas). The foreseeable damage in said case was the risk of the freight rate dropping during the period of delay, resulting in the owners being vulnerable to the possibility of having to charter the ship at a lower rate than under the fixture they had lost. Following the precedent of Jackson, ‘it should have made no difference that the fall in the market was unexpectedly steep’; as no cut-off point is provided by the contract and subsequently the case satisfied one rule of Hadley as ‘it was concluded that the loss on the new charter fell within the first rule in Hadley as arriving naturally.’ As a result of this, the plaintiffs were able to claim for the loss of the follow on fixture of the contract; however they were unable to claim for the loss they had suffered as a result of the contextual market situation.
The primary similarity, between rules in remoteness of damage, concerning Contract and Tort law is undoubtedly the adoption of the foreseeability test, ‘both tests adopt an objective assessment the “reasonable man’s contemplation”’; as seen in the cases of Simmons and Jackson. In Tort, the standard of foreseeability is considered that of the reasonable man. Similarly in Contract, the imputed contemplation is judged by the standard of the reasonable man. Such an objective assessment may be modified, in both cases, by the particular ability of the defendant to foresee or contemplate the type of loss in the circumstances. A difference in the said assessment is that Tort law adopts the test whereby it takes the reasonable man in the circumstances which were applicable at the time of the tortious act. In contrast, Contract takes the circumstances which were within the contemplation of the parties at the time the contract was made. A further distinction is found within The Heron II where it was held: ‘It is clear that on the one hand the test of foreseeability as laid down in the case of tort is not the test for breach of contract; nor on the other hand must the loser establish that the loss was a near certainty or an odds-on probability. I am content to adopt as the test a "real danger" or a "serious possibility”.’ This precedent identifies that a higher degree of probability is required in the law of Contract than in that of Tort. The justification for this difference is that if a contracting party wants greater protection against the possible consequences of breach, it may be provided for within the contract; through the notification of any factors which may stimulate a higher possibility of risk. A diametrically opposing view was adopted in H. Parsons, in which the judges referred to the judgement of Esso Petroleum Co Ltd v Mardon, ‘instances could be multiplied of injuries to persons or damage to property where the defendant is liable for his negligence to one man in contract and to another in tort. Each suffers like damage. The test of remoteness is, and should be, the same in both.’ H. Parsons therefore, stated that the test for remoteness depends, (whether it be in Contract or in Tort) not on the contemplation of the degree of injury, but, simply on the proof that the loss could reasonably have been anticipated. However, the difference remains that Tort law tends to protect the claimant; while Contract law protects the defendant. In Tort foreseeability of damage is required at the moment the tortious act is committed, whereas in Contract the relevant time is at the point at which the contract is concluded, (Jackson). Differences also arrive in relation to the concept of contributory conduct on the part of the claimant. In Tort the defence of contributory negligence is of general application; whereas in Contract it will only be available if there is a breach within the contractual duty to take care.’
In regards to remoteness of damage, concerning both the law of Contract and Tort, there remains much controversy, as to “whether remoteness is to be regarded as a separate test or is to be incorporated into the test of what is reasonably foreseeable.” Moreover, there is still debate over the perspective adopted that, “what is reasonably foreseeable cannot be determined without having regard to remoteness”. Therefore, it may be concluded that although the close interrelationship between Contract and Tort law has developed establishing specific tests for remoteness of damage; there is still scope for improvements in said area.
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Bibliography
Cases
- Allan v Barclay [1864] 2 M. 873
- Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801
- Hadley v Baxendale [1854] 9 Ex.341
- Hughes v Lord Advocate [1963] AC 387
- Jackson v Royal Bank of Scotland plc [2005] UKHL 3
- Koufos Appellant v C. Czarnikow Ltd. Respondents (The Heron II) [1969] 1 AC 350
- Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound [1961] AC 388
- Page v Smith [1996] 1 AC 155
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Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791
- Re Polemis v Furness, Withey & Co [1921] All ER 40
- Simmons v British Steel plc [2004] UKHL 20
- Smith v Leech Brain & Co [1962] 2 QB 405
- Transfield Shipping Inc. v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61
- Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Books
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Cooke, John. Law of Tort, 9th ed, (Pearson Education Ltd, 2009)
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Gloag, and Henderson. The Law of Scotland, 11th ed, (Green, W and Sons Ltd, 2001)
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Harpwood, Vivienne. Modern Tort Law, 7th ed, (Cavendish Publishing Ltd, 2008)
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Harpwood, Vivienne. Principles of Tort Law, 4th ed, (Cavendish Publishing Ltd, 2000)
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McManus and Russel. Delict: A comprehensive guide to the law, (Chichester: Wiley, John and Sons, 1998)
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Richards, Paul. Law of Contract, 10th ed, (Pearson Education Ltd, 2011)
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Routledge. Contract Law, 5th ed, (Cavendish Publishing Ltd, 2006)
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Strong, S.I and Williams, Liz. Tort Law, 2nd ed, (Oxford: Oxford University Press, 2011)
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Taylor, Richard and Taylor, Damien. Contract Law, 3rd ed, (Oxford: Oxford University Press, 2011)
Journals
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Cartwright, John. “Remoteness of Damage in Contract and Tort: A Reconsideration.”(1996) The Cambridge Law Journal.
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Bailey, Stephen and Nolan, Donal. “Delictual Liability for Resultant Suicide, a tale of inauspicious origins and unintended consequences.”(2010) The Cambridge Law Journal.
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Farran, Sue and Care, Jennifer Corrin. “Towards a Pragmatic Approach to the Contract or Tort debate in the South Pacific.”(2009) Journal of South Pacific Law.
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Hoffman, Lord. “Case Comment, The Achilleas: Custom and Practise or Foreseeability.”(2010) Edinburgh Law Review.
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Kinloch, Douglas A. “Case Comment: ‘The Grand Rule’ – Simmons v British Steel plc.”(2004) The Scottish Law Times.
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Kramer, Adam. “The new test of Remoteness in Contract.”(2009) Law Quarterly Review.
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Mcknight, Andrew. “A review of the developments in English Law during 2005: Part 1.”(2006) Journal of International Banking Law and Regulation.
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O’Sulivan, Janet. “Negligence, Remoteness and Economic Loss – Staying on Track.” (2011) The Cambridge Law Journal.
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Williams, John Melville. “Personal Injury – accident at work – emotional reaction to accident – physical injury.” (2004) Journal of Personal Injury Law.
Electronic Sources
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- http://login.westlaw.co.uk
Cartwright, John. “Remoteness of Damage in Contract and Tort: A Reconsideration” (1996) The Cambridge Law Journal
McManus & Russell, Delict: A comprehensive guide to the law, (Chichester: John Wiley & Sons, 1998)
Re Polemis v Furness, Withey & Co [1921] All ER 40
Kinlock, Douglas A. “Case comment’The Grand Rule’ – Simmons v British Steel plc” (2004) The Scottish Law Times
Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound [1961] AC 388
See 5 – at 393 per Viscount Simonds LJ
Allan v Barclay [1864] 2 M. 873 [1 Div]
Gloag & Henderson, The Law of Scotland, 11th Ed, (Edinburgh: W Green & Sons Ltd, 2001)
Simmons v British Steel plc [2004] UKHL 20
See 9 – at 67 per, Lord Rodger of Earlsferry
Hughes v Lord Advocate [1963] AC 387
Page v Smith [1996] 1 AC 155
Strong, S I & Williams, Liz. Tort Law, 2nd Ed, (Oxford: Oxford University Press, 2011)
Cooke, John. Law of Tort, 9th Ed, (Pearson Education Ltd, 2009)
Smith v Leech Brain & Co [1962] 2 QB 405
Hadley v Baxendale [1854] 9 Ex.341 (Ex Ct)
Routledge, Contract Law, 5th Ed, (Cavendish Publishing, 2006)
Hoffman, Lord. “Case comment, The Achilleas: custom and practise or foreseeability”, (2010) Edinburgh Law Review
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Taylor, Richard & Taylor, Damien. Contract Law, 3rd Ed, (Oxford: Oxford University Press, 2011)
See 24 –at 539 per Asquith LJ
See 20 – at 151 per Alderson, B
Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791
Farran, Sue &Care, Jennifer Corrin. “Towards a Pragmatic Approach To The Contract or Tort Debate in the South Pacific”, (2009) Journal of South Pacific Law
Jackson v Royal Bank of Scotland plc [2005] UKHL 3
See 31 – at 36 per Lord Hope of Craighead
Transfield Shipping Inc. v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61
Richards, Paul. Law of Contract, 10th ed, (Pearson Education Ltd, 2011)
Koufos Appellant v C. Czarnikow Ltd. Respondents (The Heron II) [1969] 1 AC 350
See 41 – at 425 per Lord Upjohn
Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801
See 28 - at 804 per Lord Denning M.R
Harpwood, Vivienne, Modern Tort Law, 7th Ed, (Cavendish Publishing, 2008)
O’Sullivan, Janet. “Negligence, Remoteness and Economic Loss –Staying on Track” (2011) Cambridge Law Journal