Remoteness of Damage

In the law of contract, remoteness of damage limits recovery to losses of a type that the party in breach could reasonably have anticipated when the contract was made. The UK Supreme Court has confirmed that this 'contract test' is 'Originating in Hadley v Baxendale' (1854) 9 Exch 341, and was later 'clarified in cases such as Victoria Laundry (Windsor) Ltd v Newman Industries Ltd' and subsequent authorities. Applying the test, 'the question to be asked is whether the type of loss suffered' was 'reasonably contemplated by the defendant at the time of' entering the contract, as a serious possibility.

The Supreme Court has also drawn out how this contract test relates to the equivalent principle in tort: it is 'a stricter test than what is sometimes called the “tort test” laid down in Overseas Tankship (UK)' Ltd v Morts Dock & Engineering Co Ltd, The Wagon Mound. Because the contractual test asks what was in the reasonable contemplation of the parties at the time of contracting — rather than simply what was reasonably foreseeable at the time of breach — a loss can fail the contract remoteness test even where an equivalent loss would pass the more generous tort test.