Remoteness (Contract)

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Remoteness limits the ability of a plaintiff to recover damages to only those which are reasonably foreseeable to the parties.[1] A plaintiff can only recover damages if the loss suffered was not 'remote'. Damages will not be considered remote if the loss was:[2]

  1. A loss arising naturally, reasonably foreseeable to anyone.
  2. A unusual loss, which usually unforeseeable but the Defendant's knowledge allowed him to see.
    • Obviously if the defendant did not have knowledge, the unusual loss will be remote and unrecoverable.

This article is a topic within the subject Contracts.

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 661-680 [27.15-27.115].

Introduction

[3] The plaintiff must also prove that the loss was not to remote. The general rule of remoteness in contract law was specified in Hadley v Baxendale:

  • "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonable be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it[4]."

In more basic terms:

  1. A loss arising naturally, according to the usual course of things, will not be too remote.
    • This is based on the presumed knowledge of the defendant - what was reasonably foreseeable.
  2. An unusual loss (one not within reasonable foreseeability) will be considered remote unlessthe defendant had knowledge which would enable him to foresee it.
    • This is based on the actual knowledge of the defendant.

These issues were discussed in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd, which distinguished between ordinary and extraordinary losses (mentioned in the ruling of Hadley v Blaxendale [5]):

  • Ordinary losses are those that arise naturally or according to the usual course of things. They are not considered remote.
    • They are losses which a party should have reasonably foreseen. Thus, they are based on the presumed knowledge of the defendant.
  • Extraordinary losses are losses which do not arise naturally and thus are not reasonably foreseeable. They are considered remote and a defendant will not be liable for them.
    • However, a defendant will be liable for extraordinary losses if it had particular or specific knowledge that these losses are likely to occur in the case of a breach. In the case of actual knowledge by the defendant of the special circumstances, he will be liable for extraordinary losses.
    • Thus, they are based on the actual knowledge of the defendant.

Remoteness was also discussed in Alexander v Cambridge Credit Corp:

  • Remoteness operates to "limit the recovery of damages to those losses and damage which in a tort case were reasonably foreseeable and which in a contract case were within the reasonable contemplation of the parties."
  • "If no special circumstances were known, the defendant could only be supposed to have contemplated “the amount of injury which would arise generally."

One more case is Stuart v Condor Commercial Insulation -

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References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310
  2. Hadley v Baxendale (1854) 9 Excg 341, 355; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
  3. Casebook, p. 661 [27.15]
  4. (1854) 9 Excg 341, 355
  5. (1854) 9 Excg 341, 355
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