FACTS Hadley v Baxendale [1854] EWHC J70

Hadley was the plaintiff and Baxendale was the defendant. A crank shaft broke in the plaintiff's mill, which meant that the mill had to stop working. The plaintiffs wanted to send the shaft to the manufacturer as quickly as possible, so that it could be used as a pattern for a new one. The carriers commissioned by the plaintiff were guilty of serious delay in making delivery. The defendant failed to deliver on the date in question, causing the plaintiff to lose business. On the above facts, the plaintiffs brought an action for breach of contract by reason of the delay. The test for remoteness of contractual damages was laid down in this case.

Test of Remoteness in Hadley v Baxendale

Dictum of Alderson B: The damages which the other party ought to receive in respect of such breach of contract should be: 1st limb: Such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, OR 2nd limb: Such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

The test of remoteness was not satisfied in the case of Hadley v Baxendale.
Why is this so? This is because under the 1st limb, the losses suffered by the plaintiff were not natural consequences of the defendants breach. It is not natural because usually, businesses like the one carried out by the plaintiff in this case, would be assumed to have spare/extra shafts. Furthermore, under the 2nd limb, the loss of profit was not within the contemplation of both parties. The defendant was not informed that the mill will be inoperable in the absence of the shaft. The defendant did not know that the plaintiff only had one crank shaft. Therefore, in this case, it was not within the knowledge of the defendant; the loss not being communicated to the defendant so the defendant was not in the contemplation of the loss of profit.

HELD Hadley v Baxendale [1854] EWHC J70

The Court of Exchequer Chamber, led by Baron Sir Edward Hall Alderson, declined to allow Hadley to recover lost profits in this case. The Court held that Baxendale could only be held liable for losses that were generally foreseeable, or if Hadley had mentioned his special circumstances in advance. The mere fact that a party is sending something to be repaired does not indicate that they would lose profits if it were not delivered on time.