Hadley v Baxendale
(1854) 9 Ex 341
The rule in Hadley v Baxendale
The test of remoteness in contract law is contemplation. Damages are available for loss which:
- naturally arises from the breach according the usual course of things; or
- is within the reasonable contemplation of the parties at the time of contracting as the probable result of a breach (this may be, for example, because special circumstances have been communicated at the time of contracting and therefore can be said to be within their reasonable contemplation)
These are referred to as the two limbs of Hadley v Baxendale.
The plaintiffs were millers and mealmen (dealers in grain) and operated City Steam-Mills in Gloucester. They worked the mills with a steam-engine. The crank shaft of the engine was broken, preventing the steam engine from working, and contracted with W Joyce & Co in Greenwich to have a new crank made. Before they could make the new crank, W Joyce & Co required the broken shaft to be sent to them, to ensure the new shaft was made to the appropriate dimensions.
Enter the defendants. The defendants were carriers operating under the name Pickford & Co. The plaintiffs engaged the defendants to deliver the broken shaft to W Joyce & Co. The defendants did not deliver the crank shaft in the time specified (2 days after receiving it from the plaintiffs), but instead delivered it 7 days after they received it from the plaintiffs.
The delay prevented the plaintiffs working their steam-mills for the five days comprising the delay, which in turn prevented them meeting supply of customers from their own mills, depriving them of the profits they would otherwise have received.
Noted that the delivery of the shaft to Greenwich was delayed by neglect of the defendants with the result that the working of their mill was delayed resulting in lost profits. The defendants claimed that this loss was too remote. The trial judge left it for the jury, who returned a verdict of 25 pound.
Ordered a new trial and stated explicitly the rule which the judge ought to direct the jury with respect to damages.
'[w]e think the proper rule is such as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or 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. Now, if the special circumstances under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants. The Judge ought, therefore, to have told the jury, that, upon the facts then before them, they ought not to take the loss of profits into consideration at all in estimating the damages. ...