Legal Update: Remoteness Of Damages For Breach Of Contract

• Published date: 29 October 2020
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Contracts and Commercial Law, Government Contracts, Procurement & PPP
• Law Firm: DQ Advocates
• Author: DQ

In Attorney General of the Virgin Islands v Global Water Associates Ltd (British Virgin Islands) [2020] UKPC 18 ("GWA") the Privy Council, the Island's final appeal Court, has recently reaffirmed the test for remoteness of damages in breach of contract claims.

In such a claim, a party will only be able to recover damages which:-

• Arise naturally from the breach of contract; or
• Are in the reasonable contemplation of the parties at the time of contracting.

It is this second limb which invokes a remoteness test, meaning that damages can only be claimed if they are reasonably foreseeable.

The Facts

In GWA the Government of the British Virgin Islands ("BVI") had entered into two contracts with Global Water Associates ("Global"). The first being for Global to design and build a water reclamation treatment plant (the "D&B Agreement") and the second being for Global to manage, operate and maintain the said plant for 12 years once built (the "Management Agreement").

The BVI Government breached the D&B Agreement in failing to provide a prepared site. Global therefore terminated the agreements and claimed damages flowing from both the D&B Agreement and also the Management Agreement on the basis that it had not only lost the ability to build the plant, but also the profits for 12 years of operating it.

After undertaking arbitration and an appeal the Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands) ultimately dismissed Global's claim for damages arising from the Management Agreement on the basis that it was of the view that those losses were not reasonably foreseeable and therefore too remote. The Court of Appeal held that the BVI Government, despite breaching the D&B Agreement, could have contracted a third party to build the plant so that Global could still operate it under the Management Agreement. Global appealed to the Privy Council.

The Decision in GWA

The Privy Council granted the appeal, permitting Global to recover damages for the losses associated with not only building the plant, but also the 12 years of lost profits from not operating it. The Court determined that as the Management Agreement could only commence if the D&B Agreement was performed, and therefore damages flowing from a breach were in fact foreseeable to the parties at the time of entering the agreements.

In reaching this decision, Lord Hodge reviewed the historic case law in this area before succinctly summarising the relevant legal principles on remoteness as...