Remoteness Case Study

Introduction

In an action to recover damages for a breach of contract, there has to be a sufficient connection between the breach and the loss where it must be caused from the breach of contract. ‘Remoteness’ refers to the test of causation that is used to determine the loss caused by a breach of contract. It limits the ability of the plaintiff to recover damages to not too remote losses .

Generally, damages would not be considered as remote if the loss suffered was, arising naturally and reasonably foreseeable, and in an unusual loss technically unforeseeable but due to the defendant’s knowledge, was foreseeable. Hadley v Baxendale established the test for remoteness in essence, a test for foreseeability. This means that the loss will be

The first limb gives the right to the claimant in the situation that he is suffering loss which is caused by the breach of contract to the losses which are in the reasonable contemplation of the parties, as at the moment the contract is made. The losses are arising naturally from the breach of contract, in that damage is an inevitable consequence of the breach and this is also known as direct loss. The second limb allows the claimant for the recovery of the loss which is in contemplation by the parties as at the date of the contract. This is known as consequential loss . In Malaysia, the principle of remoteness of damages is stated in section 74(1) of the Contract 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, or which the parties knew, when they made the contract, to be likely to result from the breach of

In Gee v. Lancashire and Yorkshire Railway Co. , Wilde B. said:

“ I think that, although an excellent attempt was made in Hadley v. Baxendale to lay down a rule on the subject, it will be found that the rule is not capable of meeting all cases; and when the matter comes to be further considered, it will probably turn out that there is no such thing as a rule as to the legal measure of damages applicable in all cases.”

As a result, case of Transfield Shipping Inc v Mercator Shipping Inc compounded confusion in respect of the principle of remoteness of damages as it established a new legal test for remoteness instead of applying rule in the Hadley’s case. In that case, the time charterer of a ship was nine days late in redelivering the ship to the owner’s disposition. The owner had meanwhile made a very profitable contract to charter the ship to another charterer following on at the end of the defendant’s charter. The consequence of the defendant’s delay under the first charter was that the second charterer became entitled to cancel its contract because the ship could not be made available on the agreed date. A compromise settlement was made between the owner and the second charterer, but, freight rates having declined in the meantime, the owner lost a large part of the benefit of the very profitable follow-on