Facts: A boiler was sold to a buyer for use in their laundry and dyeing business. The buyer told the seller that they intended to put it to use ‘in the shortest possible time’, but delivery was delayed by >5 months. The buyer claimed for lost profits (as the buyer could have done more ordinary business, plus extra profits lost due to being unable to accept new particularly lucrative government contracts).
Held: The plaintiff could recover losses for profit in ordinary business (the court held that the defendants must reasonably be presumed to foresee some loss of business if the boiler was not delivered on time), but not for lucrative government contracts. For the plaintiffs to recover the profits expected on the lucrative contracts, the defendants would have had to know of the prospect of such contracts.
Questions:
1. Were both the lost profits from ordinary business and lucrative government contracts recoverable? What Hadley v Baxendale limbs did each loss fall under?
The plaintiff could recover a general sum for the loss of profit (first limb of Hadley v Baxendale), however, they were not able to recover loss relating to lucrative government contracts (second limb of Hadley v Baxendale). This is because the defendants didn’t know of the prospect of such contracts.
2. In general, what knowledge must the parties have to satisfy the second limb? How does this differ from the first limb?
For the plaintiffs to recover the profits expected on the lucrative contracts (second limb of Hadley v Baxendale), the defendants would have had to know of the prospect of such contracts. The knowledge has to be actual knowledge.