Too Remote? Clarification of the Principle of Remoteness of Damages

The principle of 'remoteness of damages' was articulated in Hadley v Baxendale [1843 All ER Rep 461] in 1853. It is a concept which has been widely debated, and to this day, remains somewhat ambiguous. However the recent case of Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542 addresses the confusion surrounding the principle of remoteness of damages and has clarified the principles under current case law.

Background

As mentioned above, it is Hadley v Baxendale which established the remoteness of damages test in contractual disputes, a test which remains the principal tenet of the law on damages in England and Wales. Under this principle the claimant is permitted to recover the following in the event of a contractual breach:

Losses arising naturally, according to the normal course of things, from the breach of contract itself (direct loss); or Such loss as may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract, as a probable result of the breach (consequential loss). In essence, direct loss does not require a claimant to establish special knowledge, whereas consequential loss does. This actual knowledge of special circumstances is applicable when the loss which flows from the...