Remoteness

The principle that loss arising from a breach of contract is only recoverable as damages if not too remote was well- established in Scots law by the eighteenth century, and has Civilian roots stretching back to the sixteenth century. Nevertheless, all modern discussions of the subject in Scotland take the English case of Hadley v Baxendale (1854) 9 Exch 341 as their starting point. In Hadley Alderson B formulated the principle of remoteness in a test commonly divided into two "limbs" or "legs": loss is recoverable if it either arises in the usual course of things or was in the reasonable contemplation of the parties as the probable result of the breach. This is taken to mean that there are usual losses and losses arising from special circumstances, of the existence of which the parties must be aware before there can be recovery. In modern times the English courts have tended to collapse the two parts of Hadley into a single test of reasonable contemplation or foreseeability, but this is not necessarily the approach of the Scottish courts.

The development of the law in this area has been bedevilled by consideration of its relationship to the rules of remoteness of damage in the law of delict, which also uses the language of loss arising "directly and naturally" and "reasonable foreseeability". The present position seems to be that the remoteness test in contract is generally more restrictive than that in delict. This is sometimes expressed by saying that the test in contract involves "reasonable contemplation" rather than the "reasonable foreseeability" of delict. Many things are foreseeable but not likely or usual events; such losses might be recoverable in delict, but not in contract. The reason for this distinction is that contracts are generally planned relationships in which the parties can apportion risk by agreement - for example, the price at which goods and services are supplied may reflect the risk that the supplier will be found liable for the customer’s losses if the supply is late or defective, or the liability may be excluded or limited by a suitable clause - while delict typically involves parties who are strangers to each other and cannot plan the consequences of an accidental collision between them. But this is an uneasy basis for the distinction; many delicts occur between parties who are already in another legal relationship such as that of employer and employee, for example.

It is clear that the Hadley test for contract was originally designed to limit the innocent party’s recovery. Thus in Hadley itself, a mill-owner did not get the profits his mill would have earned had a carrier delivered a mill-shaft within the contractually stipulated period. A similarly restrictive Scottish decision is SS Den of Ogil Co Ltd v Caledonian Railway Co (1902) 5 F 99. But the language of Alderson B is extremely open-textured, and in modern times his famous dictum has been used in the English appellate courts to expand contractual liability considerably. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA), the purchaser of laundry machines delivered late was held able to recover the ordinary business profits which he would have made had delivery been on time, although not especially high profits which would have been made from Government contracts of which the supplier was unaware. In The Heron II [1969] 1 AC 350 a carrier who delivered goods late to a market was held liable for the profits which the owner would have made had the goods been delivered on time. Again, in (H) Parsons (Livestock) v Uttley Ingham & Co [1978] 1 QB 791 the supplier of a defective pig-hopper was held liable for the resultant death of a valuable herd of pigs, even though the actual loss was greater than could have been foreseen, it was enough that physical injury to the pigs was foreseeable to establish liability for the full (albeit unforeseeable) extent of the loss. This in turn raised doubts about Victoria Laundry, where lost profits were held to be foreseeable and therefore the lost profit on the Government contracts, as merely an instance of an unforeseeably large example of a foreseeable type of loss, should have been recoverable.

This trend of expanding liability was however somewhat reversed by the decision of the House of Lords in a Scottish appeal, Balfour Beatty v Scottish Power plc 1994 SLT 807 (HL). In this case a concrete aqueduct was being built by BB to carry the Union Canal over the Edinburgh city bypass. The aqueduct was formed by a "continuous pour" over many hours of concrete coming from nearby batching plants. A power failure halfway through this process, which constituted breach by SP, interrupted the pour and led, after some delay, to the demolition of the work done and later reconstruction, at a loss of £250,000. The House of Lords held that this loss was too remote on the first leg of Hadley v Baxendale, i.e. the loss did not arise directly in the ordinary course of events. It would have required special knowledge to make SP liable. Although business people were to be taken to have knowledge of the ordinary course of each other’s business, knowledge of specialist technical aspects such as construction techniques was not to be imputed to parties.

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15 September 2000 14:13:42 +0100