Remoteness of Damages

AuthorJamie Cassels
The common law places limits on the amount of dam ages 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 spre ad 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 t he damages for which a defendant may be re-
sponsible. As Lord Wright explai ned,
[t]he law cannot ta ke account of everything t hat follows a wrong-
ful act; it regards some sub sequent matters as outside the s cope of
its selection, becau se “it were inf‌inite for the law to judge the c ause
of causes,” or consequences of conse quences . . . . 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 mages 393
of affairs, t he law must abstract some consequence s as relevant, not
perhaps on grounds of pure log ic but simply for practical rea sons.2
The principle of remoteness of damages is the law ’s primary
means of guardi ng against unduly burdening the defendant wit h an
inappropriate degree of liability. The question is whether, on the facts
of the case, the da mages claimed are too “remote” to be recoverable.
The essential issue when addressing this quest ion 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
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 Ba xendale,4
in which a carrier (Pickford’s, a company owned by Baxendale) was
late in delivering a broken mill sha ft 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 r ule in such a case as t he present is this:
— Where two partie s have made a contract which one of them ha s
broken, the damages wh ich the other party ought to receive i n re-
spect of such breach of contract should be s uch as may fairly and
reasonably be cons idered either arising n aturally, i.e., according to
the usual cours e of things, from such breach of contrac t itself, or
such as may reas onably be supposed to have been i n the contem-
plation of both part ies, at the time they made t he contract, as the
2 Dredger “Liesbosch” (Owners) v SS “Edison” (Owners), [1933] AC 449 at 460 (HL)
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].
probable result of the breach of it. Now, if the speci al circumstances
under which the contract wa s actually made were communic ated
by the plainti ffs to the defendants, and t hus known to both par ties,
the damages re sulting from the breach of such a cont ract, which
they would reasonably contemplate, would b e the amount of injury
which would ordinar ily follow from a breach of contract under these
special circ umstances so know n and communicated. But, on the
other hand, if the se special circumsta nces were wholly unknow n to
the party bre aking the contract, he, at the mo st, could only be sup-
posed to have had in h is contemplation the amount of injury which
would arise general ly, and in the great multitude of cases not a f-
fected by any specia l circumstances, f rom such a breach of contract.
For, had the special circu mstances been k nown, the parties m ight
have special ly provided for the breach of contract by speci al 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 Ha dley states two rule s 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 th at “unusual” damages are recoverable
when the special circum stances 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: th at 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 informat ion 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 ).

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