Consequential Damages

The Hadley Vs Baxendale of 1854 is responsible for setting the leading rule that is used to determine consequential damages resulting from a breach of contract. This rule states that a breaching party is liable for all losses that should have been foreseen by the contracting parties and that the breaching party is not liable for any losses that they could not have foreseen based on the information they had available to them at the time.

Let’s go back to 1854 and take a look at how this case unfolded. Mr Hadley and other claimants were milers and mealmen, working together in a partnership where they were proprietors of the City Stream-Mills in Gloucester. One day, a crankshaft of a steam engine at the mill had broken and Hadley arranged for a new one to be made by a company called W. Joyce & Co. However, before the new crankshaft could be made W. Joyce & Co required the broken crankshaft to be sent to them so that the company could make sure the new crankshaft would fit together with the other parts of the steam engine.

With this in mind, Hadley contracted with the defendants Baxendale and Ors who worked as common carriers under the name Pickford & Co, to provide the service of delivering the crankshaft to engineers so that repair could be completed by a particular date for £2 and 4 shillings.

Now, this agreed date was not met by Baxendale and as a result, M.r Hadley lost business. He sued for the profits he lost due to the items late delivery and the jury decided to award Hadley damages of £25, but Baxendale appealed. In his defence, he stated that he did not know that Hadley would suffer any particular damage due to the reason of the objects late delivery.

So Baxendale’s appeal went underway, raising the question as to if a defendant in a breach of contract case could be held liable for damages that a defendant was not aware could come as a result of breaching the contract.

The trial took place at the Court of Exchequer and was led by Baron Sir Edward Hall Alderson. Unfortunately for Hadley, the judge declined to allow him to recover any lost profits. Instead, he judged that Baxendale could only be held liable for foreseeable losses, although if Hadley had mentioned his particular circumstances before taking out the work with Pickford & Co. Baxendale would have been held liable.

The thinking behind this specific judgement is that if a party is sending something to be repaired, that act alone is not indicating a loss in profits for the sender due to the item not then being delivered back on time once repaired. At the time, the court suggested various other scenarios where Hadley could have seen a more favourable outcome. The court noted that in any instances where special circumstances were applicable to take into account, provisions can be made in the contract voluntarily entered into by the parties to impose extra damages for any breaches.

To surmise, Party A can only claim damages against Party B which are reasonably foreseeable at the start of the contract.