Law Of Contract: Remedies For Breach Of A Contract: Common Law: Limitations On Recovery – Causation; Remoteness; Mitigation (Copy)
Limitations on Recovery of Damages
General Principle
Purpose
- Even where a breach of contract has occurred, not every loss suffered by the claimant is recoverable.
- The law places limits on damages to ensure compensation remains fair and reasonable.
- Three major limitations apply:
- Causation.
- Remoteness.
- Mitigation.
Examination Approach
When assessing recoverable damages:
- Has the claimant suffered loss?
- Was the loss caused by the breach?
- Is the loss too remote?
- Has the claimant mitigated the loss?
Only losses satisfying all stages are recoverable.
Causation
General Principle
Legal Rule
- The claimant must prove that the breach caused the loss.
- There must be a sufficient causal connection between:
- The breach.
- The damage claimed.
Examination Question
Would the loss have occurred “but for” the breach?
If yes:
- Loss usually not recoverable.
If no:
- Proceed to remoteness.
Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360
Facts
- Accountants allegedly negligent.
- Company suffered losses.
- Question arose whether losses were actually caused by negligence.
Judgment
- Losses not caused by the breach.
Legal Principle
- Claimant must establish a causal link between breach and loss.
Importance
- Leading contractual causation authority.
Application
- Frequently cited for the “but for” approach.
Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196
Facts
- Breach occurred during a shipping contract.
- Court considered causal connection between breach and loss.
Judgment
- Damages recoverable where breach materially contributed to loss.
Legal Principle
- Effective causation required before damages awarded.
Application
- Important causation authority.
Intervening Events
General Principle
Novus Actus Interveniens
- A new intervening act may break the chain of causation.
Effect
- Defendant no longer responsible for subsequent loss.
Application
- Rare but examinable.
Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370
Application
- Illustrates importance of causal connection and intervening events.
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Remoteness
General Principle
Legal Rule
- Not every loss caused by breach is recoverable.
- Loss must be sufficiently foreseeable at the time of contracting.
Examination Application
The court asks:
Was the loss within the reasonable contemplation of the parties when the contract was formed?
The Leading Test
Hadley v Baxendale (1854) 9 Ex 341
Facts
- Carrier delayed delivery of a mill shaft.
- Mill owner claimed loss of profits.
Judgment
- Claim largely failed.
Legal Principle
Loss is recoverable only if it falls within one of two limbs.
First Limb
Loss arising naturally according to the usual course of things.
Second Limb
Loss reasonably contemplated by both parties because special circumstances were communicated.
Importance
- Most important remoteness case in contract law.
Application
- Foundation of all remoteness questions.
First Limb of Hadley v Baxendale
Ordinary Loss
Definition
- Loss arising naturally from the breach.
Recoverable
Because:
- It is reasonably foreseeable.
- It normally follows from the breach.
Application
- Most commercial losses fall within this category.
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Facts
- Boiler delivery delayed.
- Laundry lost ordinary profits.
Judgment
- Ordinary profits recoverable.
Legal Principle
- Ordinary business losses usually satisfy the first limb.
Application
- Leading authority.
Second Limb of Hadley v Baxendale
Special Loss
Definition
- Loss resulting from unusual circumstances.
Requirement
- Special circumstances must be communicated to the defendant before contract formation.
Application
- Without communication, loss becomes too remote.
Victoria Laundry v Newman Industries
Facts
- Laundry also claimed exceptionally profitable dyeing contracts.
Judgment
- Exceptional profits not recoverable.
Legal Principle
- Defendant must know about unusual circumstances.
Application
- Important second-limb authority.
Horne v Midland Railway Co (1873) LR 8 CP 131
Facts
- Carrier delayed delivery.
- Claimant sought exceptional losses.
Judgment
- Loss too remote.
Legal Principle
- Special losses require communication.
Application
- Frequently cited with Hadley.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course
Modern Approach to Remoteness
The Heron II (Koufos v Czarnikow Ltd) [1969] 1 AC 350
Facts
- Ship carrying sugar delayed.
- Market price fell before arrival.
Judgment
- Loss recoverable.
Legal Principle
- Loss must be not unlikely to occur.
- Contract law requires a higher degree of foreseeability than tort.
Importance
- Leading modern remoteness authority.
Application
- Frequently examined.
Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791
Facts
- Defective grain storage hopper supplied.
- Pigs became ill and died.
Judgment
- Loss recoverable.
Legal Principle
- Physical damage may satisfy remoteness more easily than unusual financial loss.
Application
- Important authority.
Mitigation
General Principle
Legal Rule
- Claimant must take reasonable steps to reduce losses resulting from breach.
- Damages are not recoverable for avoidable loss.
Examination Application
Three key rules:
- Claimant must take reasonable steps to mitigate.
- Claimant need not take unreasonable steps.
- Successful mitigation benefits the claimant.
Duty to Take Reasonable Steps
British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673
Facts
- Defective turbines supplied.
- Buyer replaced them with more efficient machines.
Judgment
- Savings achieved through mitigation reduced damages.
Legal Principle
- Claimant must act reasonably after breach.
Importance
- Leading mitigation authority.
Application
- First case cited in mitigation questions.
Payzu Ltd v Saunders [1919] 2 KB 581
Facts
- Seller breached credit terms.
- Offered continued supply on cash terms.
- Buyer refused.
Judgment
- Buyer failed to mitigate.
Legal Principle
- Reasonable opportunities to reduce loss should be accepted.
Application
- Classic mitigation case.
Claimant Need Not Take Unreasonable Steps
Pilkington v Wood [1953] Ch 770
Facts
- Solicitor negligently failed to investigate title.
Judgment
- Claimant not required to undertake risky litigation to reduce loss.
Legal Principle
- Only reasonable mitigation required.
Application
- Important limitation.
Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452
Facts
- Claimant adopted emergency measures after breach.
Judgment
- Reasonable actions taken under pressure accepted.
Legal Principle
- Courts do not judge mitigation with hindsight.
Application
- Frequently cited.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course
Benefits Obtained Through Mitigation
British Westinghouse v Underground Electric Railways
Principle
- Benefits resulting directly from mitigation reduce damages.
Application
- Prevents overcompensation.
Hussey v Eels [1990] 2 QB 227
Application
- Demonstrates consideration of benefits obtained after breach.
Examination Comparison Table
| Limitation | Key Question |
|---|---|
| Causation | Did the breach actually cause the loss? |
| Remoteness | Was the loss reasonably foreseeable? |
| Mitigation | Did the claimant take reasonable steps to reduce loss? |
Essential Examination Cases
| Case | Principle | Limitation |
|---|---|---|
| Galoo v Bright Grahame Murray | Causal link required | Causation |
| Monarch Steamship v Karlshamns Oljefabriker | Effective causation | Causation |
| Hadley v Baxendale | Two-limb remoteness test | Remoteness |
| Victoria Laundry v Newman Industries | Ordinary and special losses | Remoteness |
| Horne v Midland Railway | Special circumstances must be communicated | Remoteness |
| The Heron II | Modern foreseeability test | Remoteness |
| Parsons v Uttley Ingham | Physical damage and remoteness | Remoteness |
| British Westinghouse v Underground Electric Railways | Leading mitigation authority | Mitigation |
| Payzu v Saunders | Reasonable mitigation required | Mitigation |
| Pilkington v Wood | No obligation to take unreasonable steps | Mitigation |
| Banco de Portugal v Waterlow | No hindsight approach | Mitigation |
| Hussey v Eels | Benefits from mitigation considered | Mitigation |
Hadley v Baxendale Two-Limb Test
| Limb | Rule |
|---|---|
| First Limb | Loss arising naturally from breach |
| Second Limb | Loss arising from communicated special circumstances |
Core Examination Principles
Causation
Galoo v Bright Grahame Murray
- Loss must be caused by breach.
Remoteness
Hadley v Baxendale
- Loss must be within reasonable contemplation.
Mitigation
British Westinghouse
- Claimant must act reasonably to reduce loss.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course