Court: Court of Exchequer
Date: 1854
Citation: [1854] EWHC J70
Hadley v Baxendale [1854] EWHC J70 is a landmark case in English contract law, setting forth the legal principles governing the remoteness of damage in breach of contract cases. The case established the rule that a party is liable for damages resulting from a breach of contract only if those damages were reasonably foreseeable at the time the contract was made. Specifically, the case clarified when consequential losses could be claimed in contract disputes and set an important precedent for how courts assess the scope of damages. This brief will explore the facts, issues, judgement, and legal principles established in Hadley v Baxendale.
Facts of Hadley v Baxendale
The facts of Hadley v Baxendale centre around a contract between the claimant, Mr. Hadley, and the defendant, Baxendale, who was a carrier. Hadley owned a flour mill, and one of its crankshafts had broken, rendering the mill inoperable. The crankshaft needed to be repaired, and Hadley arranged for the part to be sent to the manufacturers of the new part, W. Joyce & Co. in Greenwich, for a replacement to be made. To ensure the new crankshaft would fit correctly, the broken one had to be delivered to the repairers.
Hadley then engaged Baxendale to deliver the crankshaft to W. Joyce & Co. The delivery was scheduled for a specific date, as the mill was dependent on the crankshaft to operate. Baxendale was to deliver the part and return it once the repair was completed. However, due to a delay in delivery, the crankshaft was returned a week later than agreed. This delay caused the mill to be out of operation for a week, resulting in a loss of profit for Hadley.
Hadley sued Baxendale for consequential damages, arguing that the delay in returning the crankshaft had caused him a loss of profit during the period the mill was out of operation. The defendant, Baxendale, contended that he was not liable for the loss of profits as he had not been informed of the special circumstances, namely that the mill’s operation was entirely dependent on the timely return of the crankshaft.
The main issue was whether Baxendale could be held liable for the loss of profits, which were caused by the unexpected and unforeseen delay in returning the crankshaft.
Issue
The central issue in Hadley v Baxendale was whether the loss of profits caused by the mill’s closure due to the delay in returning the crankshaft was too remote for Hadley to successfully claim damages. Specifically, the court had to decide whether Baxendale, the defendant, could be held liable for losses that were not immediately foreseeable to him at the time the contract was made.
The question raised was: Can a party be held liable for damages that were not reasonably foreseeable to them, especially when the other party failed to inform them of special circumstances?
Hadley v Baxendale Judgement
The case was heard by the Court of Exchequer, and the judgement was delivered by Baron Alderson. The court ruled in favour of the defendant, Baxendale, and dismissed Hadley’s claim for lost profits. Baron Alderson explained that, in contract law, damages can only be awarded for losses that naturally arise from the breach, or for losses that the breaching party could reasonably have foreseen at the time the contract was made.
The court made an important distinction between general damages (those that arise naturally from the breach) and special damages (those that depend on special circumstances). While general damages, such as the cost of replacing the crankshaft, were readily foreseeable, the loss of profits resulting from the mill’s closure was not considered to fall within the scope of reasonable foreseeability, as Baxendale did not know that the mill would be unable to operate without the crankshaft.
In order for Hadley to claim for the lost profits, Baron Alderson emphasised that Baxendale would have needed to be informed of the special circumstances surrounding the mill’s reliance on the timely return of the crankshaft. Hadley had failed to notify Baxendale that the mill would be out of operation for a week and that this would lead to a significant loss of profits. Consequently, the court concluded that the loss of profits was too remote from the breach of contract to be recoverable.
Conclusion
Hadley v Baxendale [1854] EWHC J70 remains a seminal case in English contract law, establishing the rules for determining the remoteness of damage in breach of contract cases. The court’s decision in this case clarified when consequential damages could be claimed, providing that damages are only recoverable for losses that are reasonably foreseeable at the time the contract is made, unless special circumstances are communicated to the other party.
While the case is crucial in its development of contract law principles, it also raises questions about the practical application of the foreseeability test, particularly in cases where parties may not have communicated all relevant circumstances. Nevertheless, the case has shaped the way courts assess damages and remains a key reference point in modern contract law.
