Ratio Decidendi
Damages recoverable for breach of contract are limited to losses that fall within one of two limbs: (1) those which arise naturally — i.e. according to the usual course of things — from the breach itself, the so-called 'first limb' general damages; OR (2) those which, although not arising in the usual course of things, may reasonably be supposed to have been within the contemplation of both parties at the time of contracting as the probable result of the breach (the 'second limb', requiring special knowledge of unusual circumstances). Special losses outside the ordinary course are recoverable only where the defendant had actual or imputed knowledge of the facts that would make those losses probable.
Hechos
Hadley operated a flour mill in Gloucester. On 11 May 1853 the crank shaft of the mill's steam engine broke, halting milling operations. The mill could not run without the shaft. Hadley engaged Baxendale, a common carrier trading as Pickford & Co, to carry the broken shaft to W. Joyce & Co in Greenwich as a pattern for a new shaft. Hadley's clerk told Pickford's clerk that the mill was stopped and that the shaft must be sent immediately. Pickford promised next-day delivery for £2 4s. In fact, due to neglect, the shaft was delayed by several days. Hadley was unable to produce flour during the delay and sued for £300 lost profits.
Resumen de la sentencia
The jury at first instance awarded £25 in damages, broadly to compensate for the delay. On appeal, the Court of Exchequer (Alderson B delivering the judgment of the court, with Parke, Platt and Martin BB concurring) held that the lost profits were too remote to be recovered. The court ordered a new trial on the basis that the jury had been misdirected. Alderson B reasoned that the carrier could not be presumed to have contemplated, at the time of the contract, that delay would stop the mill entirely — Hadley might have had a spare shaft, or the mill might have been stopped for some other reason. The fact that Hadley's clerk mentioned the mill was stopped was held insufficient to bring the loss within the carrier's reasonable contemplation; for the second limb to apply, the special circumstances must be communicated in a way that brings them home to the defendant so that the loss can be regarded as something that the parties contemplated. The rule established has become the foundational common-law test of remoteness of damage in contract, distinguishing recoverable from non-recoverable losses by reference to what was reasonably foreseeable to both parties at the date of contract formation.
Citas clave
"Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."
— Alderson B at 354
"If the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract … would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated."
— Alderson B at 354–355
"Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract … to allow the jury to consider all the circumstances of the case would be to leave too wide a latitude to mere conjecture."
— Alderson B at 355
Tratamiento posterior
Remains the leading authority on remoteness of damage in contract. The two-limb test is the foundation of the common-law approach to contractual damages.
Refined in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA), where Asquith LJ restated the test in terms of whether the loss was 'on the cards' — and again in Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350 (HL), where the House of Lords adopted the formulation 'not unlikely' or 'a serious possibility' for the foreseeability standard in contract (a higher threshold than tort).
In Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48, the House of Lords held that the test is not purely one of foreseeability — the question is whether the type of loss was within the scope of the defendant's assumed responsibility. Lord Hoffmann's reformulation has reshaped the modern application of Hadley v Baxendale, particularly in commercial shipping and standard-form commodity contracts.
Applied in countless modern cases including Supershield Ltd v Siemens Building Technologies [2010] EWCA Civ 7 (sprinkler-system failure damages) and Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542 (Comm) (charterparty cancellation losses) — the two-limb framework continues to do most of the analytical work even after The Achilleas.
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