Elements in a Contract 23

In Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd. (1949) the plaintiffs contracted to purchase a boiler from the defendants for use in their existing laundry business with the intention of expanding their business. The plaintiffs were also vying for a lucrative government contract and if they were successful in obtaining the contract, their weekly income would increase manifold. The defendants were aware of the nature of the plaintiffs’ business but were not aware of the fact that the plaintiffs were eyeing a government contract.

The boiler was damaged just prior to delivery and there was a substantial delay in repairing the boiler and as a result the plaintiffs not only lost income resulting from their normal business but also lost the valuable government contract that they were after. The plaintiffs sued.

The court held that the plaintiffs were able to recover for the loss that they incurred for their normal business because such loss was within the contemplation of the parties at the time they entered into the contract but could not recover for the loss of the government contract because the defendants were unaware that the plaintiffs were vying for a government contract.

In The Heron (II) (1969) the plaintiffs chartered a ship to deliver a cargo of sugar to Basrah. The cargo was to arrive in 20 days but because the defendants had strayed from the normal route that ships normally took, there was a delay and the ship arrived 9 days late.

During that time, the price of sugar in Basrah fell significantly and the plaintiffs sued for the difference between the price they would have got had the ship arrived on time and the price that they actually got. The defendants argued that the damage was too remote and that it was not within their contemplation at the time the parties entered into the contract.

The court held that it would have been within the contemplation of the defendants that the plaintiffs intended to sell the sugar as soon as it arrived in Basrah. Sugar is a commodity and its market price fluctuates almost daily. The defendants must have known that even the slightest delay could have reduced the plaintiffs’ profit margin significantly and therefore the defendants were liable for the difference.

In Parsons v Uttley Ingham (1978) the plaintiffs purchased a food storage bin from the defendants. Due to the defendants’ negligence, the ventilator hatch was left shut and as a result the nuts that were stored in the bin became moldy. The nuts were fed to the pigs and the pigs became ill. Many died as a result and the plaintiffs sued for damages. The defendants argued that the damage was too remote and that they did not contemplate the type or degree of illness that the pigs were stricken with.

The House of Lords held that it was sufficient that the defendants could contemplate that there was a serious possibility that the pigs would contract some form or type of illness as a result of their negligence and therefore the defendants were liable.

In Transfield Shipping v Mercator Shipping (The Achilleas) (2008) the defendants chartered a vessel from the plaintiffs and returned the vessel 9 days later than expected. The plaintiffs in the meantime entered into negotiations to charter out the vessel to another party for a stipulated price.

During the 9-day delay the market price for chartered vessels overall, had fallen and the plaintiffs had to renegotiate the contract at a new rate which was lower than the original rate that they had discussed. The plaintiffs sued for the difference.

The plaintiffs argued that they should be compensated for each day of the new charter while the defendants argued that they were only liable for the 9 additional days that they had the vessel.

The House of Lords held that the defendants were liable only for the 9 additional days. The defendants could not have contemplated the damage that was incurred as a result of the follow-on contract and that the loss of profit for the next charter was not within the scope of the second limb in Hadley v Baxendale (1854).

The general rule in the shipping industry is that liability is restricted to the difference between the day the charterers were due to return the vessel and the period that they had overrun. To do otherwise would create uncertainty in the market.