Elements in a Contract 22

In deciding whether the plaintiff is entitled to damages for a breach of contract the court will take into account two factors: -

i) Causation

ii) Remoteness

Causation

In order for the plaintiff to be awarded damages the defendant must have caused the damage. The damage must be actual and tangible as opposed to something that could or may have caused damage. It however need not be the sole factor that caused the damage.

When looking into causation the courts will look into the chain of causation or the sequence of events that led to the damage and in order for the plaintiff to be awarded damages there must not be a break in the chain of causation i.e. the damage must be a direct consequence of the defendant’s actions.

In Monarch Steamship Co Ltd v Karlshamns Oljefabriker (1949) the defendants’ ship was chartered to carry soya beans from Manchuria to Sweden. The defendants in the contract had agreed to provide a seaworthy vessel but the ship developed problems and there was a delay due to repairs in Egypt. Once the repairs were completed the ship set sail for Sweden but by then the Second World War had started and the Royal Navy ordered the ship to sail to Glasgow instead.

The plaintiffs organized for the cargo to be shipped from Glasgow to Sweden and brought an action against the defendants. The defendants argued that that the ensuing war had broken the chain of causation but the court ruled otherwise. It was not the war that caused the delay but rather the ship’s un-seaworthiness and that it (the un-seaworthiness) was the dominant cause for the delay.

It is worth comparing the decision in Monarch Steamship Co Ltd v Karlshamns Oljefabriker (1949) with that in Quinn v Birch Bros (builders) Ltd (1966). The plaintiff, in the latter case, was an independent subcontractor who undertook plastering work for the defendants. The defendants had a contractual obligation to supply the equipment that was necessary for the subcontractor to carry out his work efficiently but failed to do so.

As a result, the plaintiff found a folded trestle and stood on it to complete his work. The trestle gave way and the plaintiff was injured in the accident that followed. The plaintiff sued.

The court held that it wasn’t the defendants’ breach of contract that had caused the accident but rather the plaintiff’s decision to use unsound equipment.

The use of an item that was not in the terms of the contract or the plaintiff’s choice to use an item that would not be otherwise used in the manner that it was had broken the chain of causation and the defendant was therefore not liable.

Remoteness

Once it is established that the defendant did indeed cause the plaintiff damage by breaching a term of the contract, the courts will look into the aspect of remoteness.

The rules with regards to remoteness in contract cases were given in the leading case of Hadley v Baxendale (1854). The plaintiffs, mill owners, commissioned carriers to ferry a crankshaft for repair. The mill could only be operated with the crankshaft in place and until such time that the crankshaft was replaced, the mill would remain idle. The carriers agreed to return the crankshaft within a stipulated time but because of their negligence the crankshaft was returned to the plaintiffs a week later than expected. The plaintiff sued for the loss of profits incurred between the agreed time of delivery and the actual time of delivery. It was held that in order for damages to be awarded for a breach of contract: -

i) It must be damage arising from a breach of the terms of the contract that may be considered reasonable and

ii) The damage should be in the contemplation of both parties to the contract, at the time the contract was entered into, as a likely result of a breach.

Because the defendants were unlikely to contemplate the result of the breach as the mill not being able to operate i.e. the second of the above two limbs, they were not liable.

The fact that a crankshaft would cause a mill to come to a standstill was not something that would be within the contemplation of the defendants and under normal circumstances it would be fair to say that the plaintiffs, considering the importance of the crankshaft, would have had a spare or would have made arrangements to acquire a temporary crankshaft until theirs was returned.