H418/04 - Damages, causation and remoteness
Damages turn a broken promise into a claim for compensation. Learn how to identify the loss, distinguish causation from remoteness, account for reasonable mitigation, and decide whether a contract's agreed payment clause is enforceable.
The compensatory measure
Damages are a monetary remedy for breach of contract. Establish an enforceable obligation, a breach and the claimant's recoverable loss. A breach does not need to be repudiatory before damages can be claimed. Compensatory damages aim, so far as money can, to put the claimant in the position it would have occupied if the promise had been performed, rather than punish the defendant.
This expectation measure comes from Robinson v Harman (1848), reaffirmed by the Supreme Court in Sharp v Viterra (2024). Compare the promised position with the actual position and account for expenditure saved. If a seller breaches a £2,000 machine sale, the buyer has not paid and reasonably obtains an equivalent for £2,300, the extra £300 is a basic expectation loss. The buyer cannot claim the whole £2,300 while retaining the unpaid £2,000 it would have spent anyway. Additional losses require separate justification.
Where breach causes no proved recoverable loss, nominal damages, a small token sum, can recognise infringement of the contractual right. Serious-sounding breach does not prove a large loss. Conversely, a minor-looking failure can cause considerable recoverable loss if the other requirements are met.
An alternative reliance measure addresses expenditure wasted because of breach, particularly where expected profit is difficult to establish. Anglia Television v Reed (1972) illustrates recovery of production expenses made futile by an actor's failure to perform. It is an alternative route to compensation, not an opportunity to recover both all costs and the gross earnings which would have paid those costs. Nor should it turn a demonstrably loss-making bargain into a profitable one: evidence that expenditure would not have been recouped matters.
Original comparison: a producer pays £800 for preparations and would have earned £1,200 in revenue with no further costs. Breach leaves those costs wasted and no revenue. Performance would have left a £400 net profit; the actual position is a loss of £800. The expectation difference is £1,200: the wasted £800 plus the lost £400 net profit. Adding £800 again to that £1,200 would count the expenditure twice. Where profit cannot be established, a justified wasted-expenditure claim offers an alternative, rather than a guaranteed extra award.
Causation of the loss
Causation asks whether the breach caused the claimed loss. Compare what actually happened with what would have happened if the contract had been performed. The breach must be an effective legal cause; being earlier in time than a loss is insufficient. On ordinary disputed facts, the claimant must prove its case on the balance of probabilities.
Original example: a repairer returns a café's freezer a day late. If usable stock spoils because the freezer was unavailable, the delay can cause that loss. If a separate, unavoidable power cut would have spoiled exactly the same stock even with timely return, that spoilage is not caused by the delay. There could still be a different loss, but it must be identified and proved rather than assumed.
A chain of events may include other causes. A later event does not automatically erase liability, but an independent intervening cause can break the relevant causal connection. Ask whether the breach remained an effective cause and whether the later response was a normal consequence or an independent source of loss. Unreasonable conduct by the claimant can also raise mitigation, a separate inquiry.
Benefits need a causal connection too. In The New Flamenco (2017), a ship's sale after early termination of a charter did not make an independent capital-value benefit deductible from the lost charter income. A financial gain is not simply subtracted because it occurred after breach: it must be caused by the breach or an act of mitigation. Both loss and deduction need a reasoned connection to the failed bargain.
Keep causation separate from remoteness. A lost profit may genuinely be caused by the breach yet still be outside the risk for which the defendant is responsible. Conversely, a type of loss can be foreseeable but not actually have been caused in this case.
Remoteness and contemplation
Remoteness limits which caused losses are recoverable. The ordinary contract question looks at what kinds of loss were within the parties' reasonable contemplation when the contract was made. It does not ask only what became obvious after breach or adopt tort's foreseeability test without qualification.
Hadley v Baxendale (1854) sets out two connected routes: loss arising naturally in the ordinary course from the breach, and loss arising from special circumstances communicated so that it was reasonably contemplated at formation. The carrier's delay in delivering a broken mill shaft did not make all claimed lost mill profits recoverable where the relevant stoppage circumstances were not adequately within that shared knowledge. Special information changes the risk the defendant can reasonably price or decline.
In The Heron II (1969), delayed carriage of sugar exposed the claimant to a fall in its market price. The shipowner knew of the destination market. That kind of market loss was sufficiently within contemplation to be recoverable. The judgments express the contract threshold in different ways, including “not unlikely”: a mere imaginable remote possibility is insufficient, but certainty or a probability above 50% is not required.
Original application: a supplier knows it is supplying a commercial bakery's only working oven. Ordinary lost trading profit from a late delivery may be within contemplation. An unusually profitable one-off celebrity order may require special knowledge at formation. Telling the supplier about it only after contracting does not automatically extend the original risk allocation. Precise quantum still needs evidence; foreseeable lost profit is not permission to invent its amount.
Context can refine the answer. John Grimes Partnership v Gubbins (2013) explains the ordinary approach and the relevance, in unusual contexts, of whether responsibility for that kind of loss was assumed. Commercial expectations can matter; do not treat the two Hadley routes as detached from the actual contract. Explain why the particular type of loss falls within or outside the relevant risk, rather than merely writing “foreseeable”.
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