Remedies for breach of contract 151In Koufos vCzarnikow Ltd (The Heron 2) (1967)Lord Reid held that, under Hadleyv
Baxendale, a loss was recoverable because it was ‘not unlikely’ or ‘quite likely’ to occur.
Damages could be recovered for a loss if the loss was within the reasonable contemplation
of the parties when the contract was made. The following case showed that although this is
generally the case, it is not the case if both parties would have thought that the contract
breaker did not assume liability for the loss in question.
Having decided that a loss is within one of the two rules in Hadleyv Baxendale, it must
then be decided how much the damages should be.
Amount of damages
If the contract is a sale of goods, the Sale of Goods Act 1979 sets out rules which determine
the amount of damages payable. These rules are examined in Chapter 7.
In contracts other than contracts of sale of goods, the damages are quantified on the basis
that they are intended to put the injured party in the same position, as far as money can do
this, as if the contract had been properly performed. Damages will therefore be available for
putting right defects caused by the breach of contract. They will also be available for any
other losses, such as loss of profits, as long as these were caused by the breach of contract
and were within one of the rules in Hadleyv Baxendale. If the defendant’s breach of
HeldThe claimants were entitled to the £16 a week, under the first rule in Hadleyv
Baxendale. The £262 was not available under either rule. (It would have been available
under the second rule in Hadleyv Baxendaleif the claimants had told the defendants,
before the contract was made, that such a very profitable contract would be lost if the boiler
was not delivered on time.)Transfield Shipping Inc vMercator Shipping Inc (2008) House of LordsA ship owner, M, chartered a ship to T, a charterer. T was to redeliver the ship to M by
2 May 2004. On 20 April M chartered the ship out to another person, X, for about five
months at $39,500 a day. If the ship was not delivered to X by 8 May, X had the right to
cancel the contract. T breached the contract by redelivering the ship to M nine days late.
This meant that X could refuse to be bound by the contract with M. Shipping rates had
suddenly collapsed and M had to renegotiate the contract with X, so that X would pay only
$31,500 a day. X took the ship from M for about five months at this price. T agreed to pay
damages for the nine days that the ship was late. M also claimed the difference between
the price which X had first agreed to pay, and the price which X actually paid, for the whole
five months when X had the ship. This came to $1,364,584.
HeldT did not have to pay the extra $1,364,584, even though it was ‘not unlikely’ that
M would charter the ship to another person, and that the market rates would collapse.
The potential liability of a charterer if such liability were to exist would be completely
unquantifiable. The new contract might be for a week, a month or for several years. There
was no legal precedent on the matter, but the evidence showed that everyone in the
chartering business thought that a charterer did not assume liability to pay damages for this
type of loss. All contractual liability is voluntarily undertaken, and the objective intention of
the parties was that T would not have assumed this liability.