Hadley v Baxendale [1854]

Hadley v Baxendale [1854]

Hadley & Anor v Baxendale & Ors [1854] EWHC J70 is a landmark English contract law case that established a fundamental rule for determining consequential damages resulting from a breach of contract. The case articulated that a party in breach is liable for all losses foreseeable by the contracting parties at the time of the agreement. However, if the non-breaching party possesses special knowledge unknown to the party in breach, the liability is limited to losses that the breaching party could have foreseen based on the information available to them.

Mr Hadley, a miller, and another party in a partnership, contracted with Baxendale and others for the delivery of a new crankshaft for a steam engine. The purpose was to replace the broken crankshaft, and timely delivery was crucial to ensure that the new part fit properly. Baxendale failed to deliver on the agreed-upon date, causing Hadley to incur losses in his milling business. Hadley sought damages for the profits lost due to the late delivery.

Baron Sir Edward Hall Alderson of the Court of Exchequer ruled that Baxendale could only be held liable for losses that were generally foreseeable or losses that Hadley had communicated as special circumstances in advance. The court emphasised that damages must arise either naturally from the breach or be reasonably contemplated by both parties at the time of making the contract as the probable result of the breach. If special circumstances are known and communicated, those losses can be recovered.

Baron Alderson's decision rejected Hadley's claim for lost profits, highlighting that the loss of profits could not reasonably be considered a consequence of the breach that both parties contemplated. The court clarified that if special circumstances were unknown to the party in breach, they could only be held liable for losses typically resulting from a breach of contract, not losses influenced by undisclosed special circumstances.

The significance of this case lies in its establishment of a guiding principle for assessing damages in breach of contract cases. The decision influenced the development of contract law, shaping the understanding of foreseeability and the scope of recoverable damages. It has been cited and followed in numerous cases, becoming a foundational element in contract law jurisprudence.

Despite its influence, scholars have critiqued the simplicity of the foreseeability test and highlighted its potential circularity. The rule established in this case has undergone analysis and development, with the courts recognising exceptions and nuances based on the specific circumstances of each case. The case remains a key reference point in the evaluation of damages in contract law, demonstrating the delicate balance between foreseeability and the knowledge possessed by the parties involved.
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