Hadley v Baxendale

The great case of Hadley v Baxendale [156] ER 145, on the types of loss available in a contract.

Facts

Hadley operated a steam mill in Gloucestershire. Its crankshaft was broken. It arranged with W. Joyce & Co. in Greenwich for a new one. Joyce asked Hadley to send the broken one to them so they could fit it correctly to the other parts. Hadley contracted Baxendale (trading as “Pickford & Co.”) to transport the broken crankshaft to Joyce, “and in consideration thereof the defendants then promised the plaintiffs to convey the said broken shaft from Gloucester to Greenwich, and there on the said second day to deliver the same to the said W. Joyce & Co. for the plaintiffs”.

The plaintiffs' servant told the clerk that the mill was stopped, and that the shaft must be sent immediately; and in answer to the inquiry when the shaft would be taken, the answer was, that if it was sent up by twelve o'clock an day, it would be delivered at Greenwich on the following day.

Well, you’ll not be surprised to hear that this didn’t happen, and the defendants, “by some neglect” didn’t deliver the crankshaft until the seventh day after they received it from Hadley. Hadley thus was delayed in getting the new crankshaft, and thereby lost the profits it would otherwise have received.

The paintiffs argued that these damages were too remote.

Judgment

Alderson B, in an admirably short judgment, explained thus (our emphasis and paragraphage) that there are normal direct losses, which are available to every manjack:

Now we think the proper rule is such as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be 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 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.

And there are indirect losses, which are not reasonably foreseeable unless the parties have actually communicated these and they are therefore in actual contemplation:

Now, if the special circumstances under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated.

Alderson B went on:

But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants.

Loss of profits are not necessarily indirect losses: Polypearl Ltd v E.On Energy Solutions Ltd [2014] EWHC 3045