In the landmark case of Hadley v Baxendale ([1854] EWHC J70), the plaintiff, Hadley, was a miller who operated a flour mill. A crucial part of the mill's machinery, the crankshaft, broke down, causing a halt in production. Hadley engaged the defendant, Baxendale, a carrier, to transport the broken crankshaft to a manufacturer for repair. Hadley informed Baxendale of the urgency and the need for the crankshaft to be delivered promptly. However, Baxendale delayed the delivery, resulting in significant loss of profits for Hadley due to the extended downtime of the mill.
IssuesThe primary issue in this case was whether Baxendale, the carrier, was liable for the consequential damages (loss of profits) suffered by Hadley due to the delay. Specifically, the court had to determine whether such damages were foreseeable (not remote) and therefore recoverable.
Observation:The court examined the principle of remoteness in contract law, which dictates that damages for breach of contract can only be claimed if they were foreseeable at the time the contract was made. In other words, the losses must be such that they were within the contemplation of both parties when the contract was formed. Alderson B, one of the judges, observed that for damages to be recoverable, they must arise naturally from the breach or be something that both parties had reasonably contemplated as a possible result of the breach at the time the contract was made. The judge emphasized that the carrier could not have reasonably anticipated the specific financial losses Hadley would suffer from the mill's downtime unless Hadley had communicated the exact nature of the losses that would result from delay.
Decision:The court held that Baxendale was not liable for the consequential losses suffered by Hadley. The judgment established that damages for breach of contract are limited to those which are reasonably foreseeable by both parties at the time of contracting. Since Baxendale was not made aware of the exact amount of losses Hadley would incur due to the delay, these losses were deemed too remote to be compensable. Therefore, Hadley could not recover the loss of profits resulting from the delay in delivering the crankshaft.
The case of Hadley v Baxendale ruled on the principle of ‘remoteness of damages’ in contract law, that damages cannot be recovered if they are found ‘remote’. The damages must be foreseeable in nature to be recoverable.
The principles from Hadley v. Baxendale have been widely adopted in Indian contract law, as reflected in Section 73 of the Indian Contract Act, 1872. Section 73 deals with the compensation for loss or damage caused by a breach of contract, and the Section is consistent with the principle of foreseeability established in this case.