Facts: Defendant (D), shipowner, was contracted to charter sugar to the plaintiff (P). D took a detour and the sugar arrived at the port 9 days late (breach by shipowner). D did not know that P intended to sell the sugar, yet knew that the charterers were sugar merchants and that there was a market for sugar at the port. During the delay, the market price for sugar had fallen. The charterers, P, claimed the price difference as damages.
Held: D was liable for the damages because a reasonable person in D’s position would have realised that the particular kind of loss was not unlikely to flow from the breach (per Lord Reid). This established the test for the level of foreseeability required for the first limb of Hadley v Baxendale. ‘Not unlikely’ means ‘denoting a degree of probability considerably less than an even chance but nevertheless not very unusual or easily foreseeable’.
It did not matter that D had no actual knowledge of P’s intention to sell because they ought to have contemplated it. Since prices in a commodity market were liable to fluctuate, shipowners should reasonably contemplate that it was not unlikely that, if their ships delayed their voyage, the value of sugar on board could decline.
There was no real agreement on the proper criterion for ‘reasonable foreseeable’. The balance of Australian authority would seem to accept Lord Reid’s approach of ‘not unlikely’. Lord Morris did not dissent from that view but he indicated that ‘liable to result’ was also acceptable; Lord Hodson indicated a preference for ‘liable to result’; Lord Pearce found ‘liable to result’ somewhat ambiguous and, like Lord Upjohn, preferred to state the criterion in terms of ‘serious possibility’ or ‘real danger’.
Obiter dicta: Lord Reid stated that the tests in tort and contract were very different, on the basis that where there is a contract the parties will have had the opportunity to define their liabilities already. In tort, there is no opportunity for the injured party to protect himself in some way, and thus the test is less strict [386] i.e. a higher degree of probability should be indicated in contract than in tort.
Questions:
1. Could the charterers obtain damages for the fall in market price or was the loss too remote?
Yes, they could obtain damages for the loss of profits due to the fall in market price of sugar. A reasonable person would have contemplated that loss due to fluctuations in the market price was likely to result from the breach of contract.
2. In general, for the first limb, what level of foreseeability/contemplation is required?
The level of foreseeability/contemplation required is whether, in the event the breach occurred, whether the intervention was not an unlikely occurrence (the degree of probability is less than even chance, but not very unusual; Lord Reid). Or whether it was a ‘real danger’ or ‘serious possibility’ (Lord Pearce & Lord Upjohn).