Remoteness In Contract Law

Introduction

The term of remoteness refers to legal test of causation that is used to determining the types of loss caused by a breach of contract or duty which may be compensated by a damages award. In another word, remoteness is a set of rules in both tort and contract, which limits the amount of compensatory damages for a wrong.

We can refer to the case of Hadley v. Baxendale where Baron Sir Edward Hall Alderson had declined in allowing Hadley to recover his lost profits in this case, holding that Baxendale could only be held liable for losses that were generally foreseeable, or if Hadley had mentioned his special circumstances in advance.

The application of this test: Contract v. Tort

In Contract law, the test of remoteness can be

First, the knowledge of the situation is in the ordinary course of things which mean imputed to the parties whether or not they knew about it. Second, the actual knowledge of special circumstances outside ordinary course of things but was communicated to the defendant or otherwise known by the parties.

We can look into the case of Transfield Shipping Inc v Mercator Shipping Inc where it is clear that this test is about identifying the scope of an implied assumption of responsibility by the defendant in the contract. It requires an assessment of the common expectation of the defendant 's liability.

On the other hand, in tort and negligence matter, once a breach in the duty of care had been established, a defendant was liable for all the consequent damage no matter how unusual or unpredictable that damage might be. The test for remoteness of damage in tortuous and negligence matter are whether the kind of damage suffered was reasonably foreseeable by the defendant at the time of the breach of duty and the damage must be direct consequences of the breach of

The plank struck something as it was falling which caused a spark. The spark was ignited by petrol vapours resulting in the destruction of the ship. The arbitrator held that the causing of the spark could not have been anticipated and therefore no liability arose. The claimant appealed. The court held that there was no requirement that the damage was foreseeable. The defendant was liable for all the direct consequences of their action. However, it was overruled by the decision in the case of The Wagon Mound no 1 . The defendant 's vessel, The Wagon Mound, leaked furnace oil at a Wharf in Sydney Harbour. Some cotton debris became embroiled in the oil and sparks from some welding works ignited the oil. The fire spread rapidly causing destruction of some boats and the wharf. The court held that Re Polemis should no longer be regarded as good law. A test of remoteness of damage was substituted for the direct consequence test. The test is whether the damage is of a kind that was foreseeable. If a foreseeable type of damage is present, the defendant is liable for the full extent of the damage, no matter whether the extent of damage was