C Czarnikow Ltd v Koufos [1969]

C Czarnikow Ltd v Koufos [1969]

C Czarnikow Ltd v Koufos [1969] 1 AC 350, also known as The Heron II, is a significant English contract law case that addresses the issue of remoteness of damage. The House of Lords established that the remoteness test, when applied as a limitation to liability in contract law, is more restrictive compared to its application in tort.

Koufos chartered a ship, the Heron II, from Czarnikow to transport 3,000 tons of sugar to Basra. The delivery was delayed by nine days, leading to a drop in the sugar price from £32 10s to £31 2s 9d. Koufos claimed the difference in the loss of profit. While Czarnikow was aware of the existence of the sugar market, they did not have knowledge of Koufos's intention to sell the sugar immediately.

The House of Lords ruled that the loss claimed by Koufos was not too remote. Lord Reid, delivering the leading judgment, emphasised that the test for remoteness in contract is more confined than in tort. In tort, any damage that is reasonably foreseeable can be claimed, but in contract, the defendant must have realised that the loss was not unlikely to result from the breach of contract. Lord Reid stressed the need for a higher degree of probability for the loss to be within the contemplation of the parties.

Lord Reid explicitly disagreed with Asquith LJ's judgment in Victoria Laundry v Newman [1949], particularly objecting to the use of the term foreseeability. Instead, he proposed the use of the words not unlikely to denote a probability less than even chance but still reasonably foreseeable. Lord Reid highlighted the fundamental difference between the tests in tort and contract, asserting that the opportunity for the parties to allocate their liabilities in a contract justifies a less generous test for remoteness in contract law.

While Lord Morris, Lord Hodson, Lord Pearce, and Lord Upjohn generally approved of Asquith LJ's language, the case, as a whole, underscored the nuanced and stricter approach to determining the foreseeability of damages in contract law. C Czarnikow Ltd v Koufos contributes to the ongoing discussion on the scope and limitations of liability in contractual relationships, emphasising the need for a more stringent standard when assessing the foreseeability of losses resulting from a breach of contract.
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