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].
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.
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).
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