CASE STUDY:

Hadley v Baxendale[1854]EWHC J70

and its application in Malaysian law:

Malaysian Rubber Development Corp v. Glove Seal
[1994] 3 MLJ
FIRM 4

Consequential Damages From

A Breach Of Contract
Landmark Case: Hadley v Baxendale[1854]EWHC J70
GENERAL IDEA: a breaching party isliablefor all losses
that the contracting parties should have foreseen;
BUT
not liable for any losses that the breaching party could
not have foreseen on the information available to him

Hadley v Baxendale The

Facts
The claimants, Mr Hadley and another, were millers and
mealmen and worked together in a partnership as proprietors
of the City Steam-Mills in Gloucester. They cleaned grain,
ground it into meal and processed it into flour, sharps, and
bran.
A crankshaft of a steam engine at the mill had broken and
Hadley arranged to have a new one made by W. Joyce & Co. in
Greenwich. Before the new crankshaft could be made, W. Joyce
& Co. required that the broken crankshaft be sent to them in
order to ensure that the new crankshaft would fit together
properly with the other parts of the steam engine.

Hadley v Baxendale The

Facts
Hadley contracted with defendants Baxendale and Ors,
who were operating together as common carriers under
the name Pickford & Co., to deliver the crankshaft to
engineers for repair by a certain date at a cost of 2
sterling and 4 shillings (current value of about 240.00)

Hadley v Baxendale The

Facts
Baxendale failed to deliver on the date in question,
causing Hadley to lose business.
Hadley sued for the profits he lost due to Baxendale's late
delivery, and the jury awarded Hadley damages of 25
(present value about 2500).
Baxendale appealed, contending that he did not know that
Hadley would suffer any particular damage by reason of
the late delivery.

Hadley v Baxendale The

Issue
whether a defendant in a breach of
contract case could be held liable for
damages that the defendant was not
aware would be incurred from a
breach of the contract?

Hadley v Baxendale The

Judgment
The Court of Exchequer declined to allow Hadley to
recover lost profits in this case
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 the party would lose
profits if it is not delivered on time.

Hadley v Baxendale
The Two Limbs/Tests

Damages are available for loss which:

(1) naturally arises from the breach according the
usual course of things;
or
(2)is within the reasonable contemplation of the
parties at the time of contracting as the probable result
of a breach (this may be, for example, because special
circumstances have been communicated at the time of
contracting and therefore can be said to be within their
reasonable contemplation)

Application in Malaysia
Section 74(1) Contracts Act 1950:
When a contract has been broken, the party who suffers by the
breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him
thereby,which naturally arose in the usual course of things from the
breach, orwhich the parties knew, when they made the contract, to be
likely to result from the breach of it.
Section 74(2) Contracts Act 1950:
Such compensation is not to be given for any remote and indirect
loss or damage sustained by reason of the breach

Malaysian Rubber Development Corp v. Glove

Seal The Facts
The agreement was for the supply by the plaintiff to the
first defendant of two million rubber gloves per month at a
total price of US1.8 million.
In breach of the agreement, the defendant failed to issue
an irrevocable letter of credit in favour of the plaintiff.

Malaysian Rubber Development

Corp v. Glove Seal The Judgment
In assessing damages, the High Court awarded the
plaintiff, inter alia, RM3.1 million for loss of profits based
on the proposition that, as there was no available market
for the gloves, the measure of damages was the difference
between the contract price and the price at which the
gloves were eventually sold, and not the difference
between the contract price and manufacture cost since
the plaintiff was only obliged to supply the gloves and not
manufacture them.

Malaysian Rubber Development

Corp v. Glove Seal The Judgment
Mohamed Dzaiddin SCJ for the Supreme Court:

the normal measure of damages for breach of contract in this country is prescribed
by Section 74(1) of the Contracts Act, 1950, which is the statutory enunciation of
Hadley v Baxendale

In essence, the section states that the party may recover any loss or damage for any
breach which: (a) naturally arose in the usual course of things; or (b) which the
parties knew, when they made the contract, to be likely to result from the breach of
it (contemplation)

courts have treated the position under the second limb of the section to be similar to
the second limb of Hadley v. Baxendale, which is, the party may recover damages
which may reasonably be supposed to have been in contemplation of both the
parties, at the time they made the contract

Malaysian Rubber Development

Corp v. Glove Seal The Judgment
Thus, section 50(2) states that the measure of damages is the
estimated loss directly and naturally resulting, in the ordinary
course of events, from the buyers breach of contract
If there is clearly no available market, the damages will be
assessed at the contract price less the value of the goods to the
Plaintiff at the time of the breach, which value Is likely to be based
upon the price at which the goods are eventually sold