Remoteness of Damages

• Author: Jamie Cassels
• Pages: 392-427

392

CHAPTER 11

REMOTENESS OF

DA M AGES

A. INTRODUCTION

The common law places limits on the amount of damages recoverable

for a tort or breach of contract, in order to avoid unduly burdening the

defendant with an entirely unexpected or disproportionate degree of

liability. As when a small pebble is thrown in a pond, the ripple effects

from the commission of a tort or a breach of contract can spread far

and wide. Even a minor breach of contract or tort may cause damage

quite unforeseen by the part ies and out of proportion to the culpability

of wrong done. As a judge in one leading case explained, the relentless

pursuit of the compensation principle, without limit, would result in

liability for the most improbable and unpredictable consequences and

would be unduly harsh on the defendant.1 Thus, every system of law

has a way of limiting the damages for which a defendant may be re-

sponsible. As Lord Wright explained,

[t]he law cannot take account of everything that follows a wrong-

ful act; it regards some subsequent matters as outside the scope of

its selection, because “it were inf‌inite for the law to judge the cause

of causes,” or consequences of consequences . . . . In the varied web

1 Victoria Laun dry (Windsor) Ltd v Newman Industr ies Ltd, [1949] 2 KB 528 (CA)

[Victoria Laundry].

Remoteness of Da mages393

of affairs, the law must abstract some consequences as relevant, not

perhaps on grounds of pure log ic but simply for practical reasons.2

The principle of remoteness of damages is the law’s primary

means of guarding against unduly burdening the defendant with an

inappropriate degree of liability. The question is whether, on the facts

of the case, the damages claimed are too “remote” to be recoverable.

The essential issue when addressing this question is whether it is fair

to burden the defendant with the particular loss that has occurred. As

Cromwell JA said in DW Matheson & Sons Contracting Ltd v Canada

(Attorney General), “remoteness imposes on damage awards re asonable

limits which are required by fairness.”3

B. REMOTENESS IN CONTRACT

1) The Rule in Hadley v Baxendale

The test for whether a particular loss i s too remote is one of “reasonable

contemplation.” The defendant will be responsible for a loss when that

loss could be said to be with in her reasonable contemplation at the time

of entering into the contract. The leading case is Hadley v Baxendale,4

in which a carrier (Pickford’s, a company owned by Baxendale) was

late in delivering a broken mill shaft to a manufacturer. The item had

been shipped as a prototype for the manufacture of a replacement. As

a result of the late delivery, the plaintiff m ill owner lost prof‌its because

the mill was idle for longer than neces sary. The court held that the loss

was too remote to be recoverable and provided the classic formulation

of the rule:

Now we think the proper rule in such a case 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 re-

spect 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 contem-

plation of both parties, at the time they made the contract, as the

2 Dredger “Liesbosch” (Owners) v SS “Edison” (Owners), [1933] AC 449 at 460 (HL)

[Liesbosch].

3 DW Matheson & Sons Contracting Ltd v Can ada (Attorney General)(2000), 187

NSR (2d) 62 at para 69 (CA) [Matheson].

4 (1854), 9 E xch 341, 156 ER 145 [Hadley].

REMEDIES: THE LAW OF DAMAGES394

probable result of the breach of it. Now, if the speci al circumstances

under which the contract was actually made were 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 ordinar ily follow from a breach of contract under these

special circumstances so known and communicated. But, on the

other hand, if the se special circumsta nces were wholly unknow n to

the party breaking the contract, he, at the most, could only be sup-

posed to have had in h is contemplation the amount of injury which

would arise generally, and in the great multitude of cases not af-

fected by any special circumstances, from such a breach of contract.

For, had the special circumstances been known, the parties might

have specially provided for the breach of contract by special terms

as to the dam ages in that case; and of thi s advantage it would be very

unjust to deprive them.5

It is sometimes said that Hadley states two rules or “branches.”6

The f‌irst is that damages are recovered only when they are the natural

(usual) consequence of breach, or within the reasonable contemplation

of the parties. The second is that “unusual” damages are recoverable

when the special circumstances have been communicated to the de-

fendant, or the defendant has actua l knowledge of those circumsta nces.

In fact, it is simpler to formulate the principle as one rule: that the

damages must be within the reasonable contemplation of the parties

at the time of contract.7 What is within t heir reasonable contemplation

will simply depend upon what information and knowledge they have

at the time of entering into the contract.8 When a breach of contract

caused losses for plaintiffs, due to their special vulnerability, of which

5 Ibid at 151 (cited to ER).

6 See, for example, ASEAN Technology Partne rs Inc v National Research Council of

Canada,2007 BCSC 1539 at para 117:

Under the f‌irst bra nch of the test, a court will b e required to objectively

assess whet her a reasonable person would contempl ate that a breach of

contract would lead to t he loss in question. Under the second br anch of

the test, a cour t must assess whether a rea sonable person, having k nowl-

edge of special c ircumstances know n to the defendant and the plai ntiff at

the time of contr acting, would contemplate that a breac h of contract would

lead to the loss i n question. Here, actual knowledge w ill be examined.

7 Fidler v Sun Life Assurance Co of Canad a, [2006] 2 SCR 3 at para 54 [Fidler];

Mustapha v Culligan of Canada Lt d,2008 SCC 27 at para 19 [Mustapha]; Honda

Canada Inc v Keays,200 8 SCC 39 at paras 54–55.

8 See Somerville v Ashcroft Development Inc, [2005] OJ No 3361 at paras 68 –69

(SCJ).