Notes of Cases
| DOI | http://doi.org/10.1111/j.1468-2230.1968.tb01184.x |
| Published date | 01 March 1968 |
| Date | 01 March 1968 |
NOTES
OF
CASES
TKE
REMOTENESS
OF
DAMAGES
IN
CONTRACT
THE
rule
or
rules to determine the remoteness of recoverable damage
in contract have occasioned much less conceptual difficulty than the
corresponding rules in tort and appear to have operated satisfac-
torily in practice in the great majority of cases in which they have
been relevant, over a very long period.
It
is therefore somewhat
surprising that the House of Lords in
The Heron
II
l
should have
considered it necessary
or
desirable to embark upon an elaborate
re-examination and restatement of this branch
of
the law.
Thc appellant,
Koufos,
chartered the
Ileron
II
to the respon-
dent,
C.
Czarnikow Ltd., to load sugar at Constanza and to carry
it to Basrah
or,
at the latter's option, to Jeddah. The option was
not exercised and the voyage took place to Basrah.
It
should have
taken some twenty days but due to deviations by the appellant, in
breach of contract,
it
took twenty-nine days. In the interval the
price of sugar on the Basrah market fell from
€82
10s.
per ton to
E81
2s.
9d. per ton. The difference in price on the cargo of
8,000
tons, amounting in total to
$4,010
16s.
ad., was the subject-matter
of the action. When the contract was made the respondent
intended to sell the sugar on arrival at Basrah, subject to the possi-
bility
of
shipping the cargo to Jeddah. Although the appellant did
not know this he did know that there was a market for sugar at
Basrah. He accepted liability for loss equivalent to interest on the
value of the cargo for the period of delay but denied liability for
the
loss
in value. The question to be determined therefore was
whether
or
not the appellant shipowner ought to have realised that
as a result of any delay in breach of contract on his part the respon-
dent could suffer further loss due to a downward market price
fluctuation and, if
so,
ought he to be held liable for
it.
The most obvious obstacle in the path of the respondent was
the decision of the Court of Appeal in
The
Parana,2
in which it was
held that loss
of
market value due to a delay in delivery could not
be recovered from a carrier by sea.* Their Lordships were unani-
mous in affirming that this decision laid down no general
or
special
rule of law for the assessment
of
damages of this nature.'
1
[1967]
3
All
E.R.
686; [1967]
3
W.L.R.
1491. Page references below are
to the former report.
2
(1877)
2
P.D.
118; reversing the judgment
of
the Admiralty
Division
(1876)
1
P.D.
452.
3
The
Parona
was followed only in
one
reported decision, that of the Court
of
Appeal in
The
Notting
Hill
(1884)
9
P.D.
105,
where the claim was in tort
for
loss
of
value due
to
delay
in
delivery caused
by
a collision.
It
appears.
however, to have been applied frequently in unreported casw: see [1966]
2
All
E.R.
503
at p.
608,
per
Diplock
L.J.
4
Dunn
V.
Rucknall
Brothers
[l902]
2
K.B.
614,
in which the
Court
of
Appeal
had Rtsted that
The
Parana
laid down
no
such general rule, was, accordingly,
expressly
approved.
203
204
THE
MODERN
LAW
REVIEW
Vor..
81
The Parana
aside,
The Heron
II,
in consequence, turned upon
the application of the ordinary rules as to the remoteness of recover-
able damage in contract. There are a number of uncertainties in
the law on this point which, assuming an intensive re-examination
were justified in this instance, might have been settled. Unfortu-
nately, however, this is not the case.
The test
or
tests
of
remoteness
of
damage in contract
The IIeron
IZ
shows clearly that the so-called first rule,
or
first
branch of the rule,
in
Iladley
v.
Ba~endale,~
contains a double
standard. The two elements can be stated in the form of two
separate tests, limiting the damages recoverable for breach of
contract to either
:
(a) damages which might naturally and usually arise from the
breach;
or
(b) damages which may reasonably be supposed to have been
in the contemplation of the parties at the time they made
the contract as being the probable result of its breach.@
In test (a) the emphasis is upon the chain of causation resulting
from the breach. In test (b) the emphasis is upon the common
agreement or understanding of the parties at the time the contract
was made as to the scope and extent of their mutual rights and
liabilities in the event of breach.7 In the former the test is essen-
tially objective and it is applied
ex post facto;
in the latter the test
is basically subjective, in the sense
of
being dependent upon findings
as to the consensus between the parties, and it is applied
a priori.
If
both of these tests were applied they would in many instances
give the same result. Where this is
so
they can be equated, and
either can be further defined in terms of the other.
The Heron
ZI,
however, illustrates circumstances in which their separate applica-
tion may produce diametrically opposite results. Their Lordships
were unanimous in applying, in effect, test (a) above, and deciding
that as a question of relative probability the chain
of
events which
gave rise to the
loss
was not unlikely to occur in the event
of
8
(1854)
9
Exch.
841.
@
The separation
is
most clearly expressed by Lord Upjohn
at
p.
715E, but
is implicit in
all
the other judgments. Donaldson
J.’s
remarks in
Arunu
Mills
Ltd.
v.
Dharujmul
Gobindram,
1
W.L.R.
101. following
The
Heron
11,
show the distinction concisely when he stated,
at
p. 111, that currency
devaluation
or
appreciation will iisually he irrelevant in assessing damages in
contract:
‘‘
either
because the loss flowing
.
.
.
has no causal connection with
the breach
of
contract
or
because such a
loss
is not within the assumed
contemplation of the parties.” (Italics added.)
7
The mutual understanding need not be a8 self.evident
as
would,
e.g.,
give rise
to the implication
of
a
term of the contract, but may consist, in appropriate
circumstances, of common knowledge only. The dicta of Willes
.J.
to the
contrary in
British
Columbia
Saw
iMiZZ
Co.
V.
Nettleship
(1868)
L.R.
3
C.P.
499 at
p.
509 were disapproved by
Lord
Upjohn
in
The
Heron
I1
at
p.
715(3,
and this accords with the general view:
see
Mayne
Ct
McGregor
on
Damages,
12th ed., paras. 131-134.
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