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Remoteness of Damage in Contract and Tort: A Reconsideration

Published online by Cambridge University Press:  16 January 2009

John Cartwright
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The starting point for any rule of remoteness of damage is the familiar notion that a line must be drawn somewhere: it would be unacceptably harsh for every tortfeasor or contract breaker to be responsible for all the consequences which he has caused. We could, of course, just abandon any attempt to formulate rules for this area, and look to the judge's pragmatic discretion as to what is “fair” in the circumstances of the particular case: let it be simply a question of fact. Certainly, the question of where to draw the line on recoverability of consequential losses cannot be answered by a mathematically precise formula, and occasionally the judges are quite explicit that they are drawing the line on the facts of a case because they regard that as a “fair” solution.

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The Cambridge Law Journal , Volume 55 , Issue 3 , November 1996 , pp. 488 - 514
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Copyright © Cambridge Law Journal and Contributors 1996

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References

1 E.g. Watkins L.J. in Lamb v. Camden LBC [1981] Q.B. 625, 647.

2 Parsons v. Uttley Ingham [1978] 1 Q.B. 791, 802–804; Hart, and Honore, , Causation in the Law (2nd ed., Oxford 1985), pp. 320321CrossRefGoogle ScholarCooke, [1978] C.L.J. 288, 298Google Scholar. In Cambridge Water Co. v. Eastern Counties Leather plc [1994] 2 A.C. 264, 300 Lord Goff argued that a plaintiff should not be able to recover for damage to property more easily than personal injury.

3 Ibid, at pp. 804,806.

4 Lamb v. Camden LBC, above, n. 1, at pp. 637–638.

5 Posner, Economic Analysis of Law (4th ed., Boston 1992), p. 127Google Scholar; Bishop, (1983) 12 J.L.S. 241 254256 Cane Tort Law and Economic Interests (2nd ed., Oxford 1996), p. 145.Google Scholar

6 Cooke, [1978] C.L.J. 288.Google Scholar

7 [1961] A.C. 388, 422–423.

8 The Wagon Mound (No. 2) [1967] A.C. 617; Cambridge Water Co. v. Eastern Counties Leather plc, above, n. 2.

9 Slipper v. BBC [1991] 1 Q.B. 283.

10 [1969] 1 A.C. 350.

11 (1854) 9 Ex. 341,354.

12 Ibid., at p. 355.

13 See also Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd [1949] 2 K.B. 528, 539; The Heron II, above, n. 10, at pp. 386, 397, 414.

14 Bishop (1983) 12 J.L.S. 241, 254–256.

15 British Columbia and Vancouver's Island Spar, Lumber and Saw Mill Co. Ltd. v. Netlleship (1868) L.R. 3 C.P. 499, 506; GKN Centrax Gears Ltd. v. Matbro Ltd. [1976] 2 Lloyd's Rep. 555, 580; The Pegase [1981] I Lloyd's Rep. 175, 182; Seven Seas Properties Ltd. v. Al-Essa (No. 2) [1993] 1 W.L.R. 1083, 1088.

16 Above, n. 15.

17 See also The Pegase, above, n. 15, at pp. 182–183.

18 There is also a question of what must be foreseeable. It appears that the defendant need not foresee the actual losses, only the kind of losses which would be suffered by the plaintiff: Christopher Hill Ltd v. Ashington Piggeries Ltd [1969] 3 All E.R. 1496; GKN Centrax Gears Ltdv. Matbro Ltd., above, n. 15, at p. 580; Parsons v. Uttley Ingham [1978] 1 Q.B. 791, 813; The Rio Claw [1987] 2 Lloyd's Rep. 173,175; or the circumstances in which the losses would be suffered: Great Lakes Steamship Co. v. Maple Leaf Millin Co. Ltd. (1924) 20 LI. L. Rep. 2, 5, 7; Wroth v. Tyler [1974] Ch. 30, 61. The application of this principle may be more difficult in cases of economic harm than physical damage: see n. 65, below.

19 Parsons v. Uttley Ingham, above, n. 18, at pp. 802, 807.

20 [1969] 1 A.C. 350, 422.

21 [1961] A.C. 388; [1967] A.C. 617.

22 [1969] 1 A.C. 385–386, 389; see also Lord Hodson at p. 411 and Lord Pearce at pp. 413–414.

23 [1949] 2 K..B. 528, 539–540 (propositions (3.) to (6.)). Th e only real problem with Asquith L.J.'s formulation may be his final suggestion of the expression "on the cards". This expression is colloquial an d unclear: whether it means a low or high probability may depend on the "cards " to which it refers: playing cards (low probability, perhaps even a one in 52 chance: see Lord Reid [1969] 1 A.C. 350, 390) or tarot cards (high probability, presumably, in the eyes of one who believes in the accuracy of fortune-telling cards). It is not clear which cards were originally referred to in this expression: Oxford English Dictionary (2nd ed), Card, sb2 1.2.e.

24 Re Polemis [1921] 3 K.B. 560.

25 In particular, Hughes v. Lord Advocate [1963] A.C. 837 an d The Wagon Mound (No. 2) [1967] A.C. 617.

26 [1961] A.C. 388, 420. Nor did the House in East Ham Corporation v. Bernard Sunley & Sons Ltd. [1966] A.C. 406 react to counsel's suggestion (at p. 418) that, after Wagon Mound, "the testof foreseeability is applicable in both tort and contract"; and Lord Upjohn (at p. 445) an d Lord Pearson (at p .451) even used without criticism Asquith L.J.'s testof "on the cards" from Victoria Laundry.

27 Above, n. 25, at p. 643.

28 Above, n. 26, at pp. 419, 422–423.

29 Ibid, at p. 413. See also Lord Reid at p. 386, Lord Hodson at p. 411 and Lord Upjohn at p. 422.

30 Lord Pearson in Home Office v. Dorset Yacht Co. Ltd. [1970] A.C. 1004, 1052; Denning L.J. in Roe v. Minister of Health [1954] 2 Q.B. 66, 85 and (as Lord Denning M.R.) Spartan Steel v. Martin [1973] Q.B. 27, 37; and (significantly, given his later statements in Caparo v. Dickman) Oliver L.J. in P. Perl (Exporters) Ltd. v. Camden LBC [1984] Q.B. 342, 353.

31 [1932] A.C. 562, 580.

32 Above, n. 26, at p. 425.

33 Even in 1987 the Courtof Appeal were able to take this view in the contextof liability for nervous shock: Attia v. British Gas plc [1988] Q.B. 304, 315, 319.

34 [1990] 2 A.C. 605, 617–618, 635, 643, rejecting the idea of a generalised testof Anns v. Merlon LBC [1978] A.C. 728, 751–752.

35 Sutherland Shire Council v. Heyman (1985) 60 A.L.R. 1, 43–44.

36 Spring v. Guardian Assurance plc [1995] 2 A.C. 296, 334, 342, 345; White v. Jones [1995] 2 A.C. 207, 275–276; Marc Rich & Co. AGv. Bishop Rock Marine Co. Ltd. [1996] 1 A.C. 211, 235, 241.

37 Above, n. 34, at pp. 635–636. See also Lord Bridge at p. 618 and Lord Roskill at p. 629.

38 Ibid, at pp. 621, 638, 661.

39 Ibid, at p. 627. See also Lord Oliver at p. 651.

40 (1985) 60 A.L.R. 1, 48, quoted by Lord Oliver at [1990] 2 A.C. 651–652.

41 [1961] A.C. 388, 425.

42 This approach is reinforced by the House of Lords' most recent decision relating to damages in contract and tort: South Australia Asset Management Corp. v. York Montague Ltd [1996] 3 W.L.R. 87, 93 (Banque Bruxelles S.A. v. Eagle Slur).

43 Wagon Mound asks the "foreseeability" question directed at the "kind" of damage: [1961] A.C. 388, 426, and it is this basic test which is an unnecessary duplication of the test applied at the point of asking whether a duty of care is owed. Over and above the Wagon Mound test there remain issues such as whether the extent of the damage need be foreseeable (no, according to Hughes v. Lord Advocate [1963] A.C. 837, 845), and whether the unforeseeable injuries of a plaintiff who has an inherent susceptibility ("egg-shell skull") are recoverable (yes, according to Smith v. Leech Brain & Co. Ltd. [1962] 2 Q.B. 405). Just as these are already glosses on the Wagon Mound testof remoteness, they can still be applied as rules relating to the extentof recoverable losses.

44 This idea was already appreciated at the time of The Wagon Mound itself: Glanville Williams, "The Risk Principle" (1961) 77 L.Q.R. 179. Some writers have not sympathised with the Privy Council's concern to ensure congruence between the testof duty and remoteness: e.g. Kidner, "Remoteness of damage: the duty-interest theory and the re-interpretation of the Wagon Mound" (1989) 9 L.S. 1, who separates the questions of (a) who should insure? (duty) and (b) what should he insure for? (remoteness). That article was written before the re-emphasis in Caparo v. Dickman of the categorisation of duties by reference to (inter alia) the foreseeable kinds of loss.

45 Lord Oliver in Caparo v. Dickman (at pp. 635, 636) also took the view that foreseeability may be the only requirement for the creation of the duty of care in relation to some cases of directly inflicted physical damage. For further refinement, see Marc Rich & Co. AGv. Bishop Rock Marine Co. Ltd. [1996] 1 A.C. 211.

46 [1964] A.C. 465.

47 Lord Reid was careful to pointout that words must be treated differently from acts, since the potential consequences are more wide-ranging: he therefore thought that Donoghue v. Stevenson had no direct bearing on the case: Ibid, at pp. 482–483.

48 Ibid, at pp. 483, 486, 494, 502–503, 505, 514, 525, 529, 539–540.

49 [1995] 2 A.C. 296.

50 [1995] 2 A.C. 145.

51 [1995] 2 A.C. 207.

52 Spring v. Guardian, above, at p. 318; Henderson v. Merretl, above, at pp. 180–181; White v. Jones, above, at pp. 268, 270, 289. When the question is whether a duty is owed in respectof a statement, it is appropriate to use a test which asks whether the plaintiff was likely torely on the statement: loss is generally caused by statements not directly but by the plaintiffs own actions in response to the statement: see While v. Jones at p. 272. However, when the issue is not a statement but an act (which tends to cause the damage to the plaintiff without the need for the plaintiffs own decision to accept and act upon the defendant's act), the conceptof "reliance" by the plaintiff is unhelpful; hence the shift from the plaintiffs "reliance" to the defendant's "assumption of responsibility". Because Hedley Byrne was a case involving statements, either method of expression was equally appropriate.

53 Henderson v. Merrett, above, at p. 181.

54 Ibid.

55 Hedley Byrne v. Heller, above, at p. 529 (Lord Devlin), quoted and followed by Lord Goff in Henderson v. Merrett at pp. 179, 181.

56 Using, according to Lord Goff, the testof objective ascertainmentof parties' intentions borrowed from the law of contract: Henderson v. Merrett at p. 181.

57 Ibid., at p. 790. In Hedley Byrne Lord Devlin also drew a distinction between duties "imposed by law upon certain types of persons or in certain sorts of situations" and (as in Hedley Byrne itself) duties "voluntarily accepted or undertaken": [1964] A.C. 465, 529.

58 [1969] 1 A.C. 350, 385–386. In White v. Jones at pp. 293–294 Lord Nolan appeared to suggest that all cases of liability in negligence involve an assumption of responsibility: he gave the example of the car driver, who assumes a responsibility towards other road users by taking his car outon the road; the other road users then "rely" on the car driver to discharge his responsibility to take care. This notion of "assumption of responsibility" is however far too wide to be useful in the context we are considering—and is contrary to the view of Lord Goff in Henderson v. Merrett atp. 196.

59 The idea of drawing contract and tort together can occasionally be found: for example, in Canada, BDCLtd. v. Ho/strand Farms Ltd. (1986) 26 D.L.R. (4th) 1, 13–15; this does not however appear to have been pressed to its possible conclusion in later cases.

60 [1990] 2 A.C. 605, 620–621. See also Lord Oliver at p. 638 and Lord Jauncey at p. 661.

61 Even in The Heron II at pp. 411 (Lord Hodson), 413 (Lord Pearce); but also in Parsons v. Ultley Ingham [1978] 1 Q.B. 791, 804 (Lord Denning M.R.), 807 (Scarman L.J.).

62 And, indeed, the House of Lords said in Henderson v. Merreti, in the contextof limitation of actions, that a plaintiff should be entitled to pursue whichever claim is the more advantageous for him.

63 [1976] Q.B. 801,820.

64 [1978] 1 Q.B. 791,804.

65 Except that the courts may well take a broader view of "types" of physical damage, and therefore may be more reluctant to say that the (physical) damage suffered by the plaintiff is of a different type from that which the defendant could have had in contemplation: e.g. Vacwell Engineering Co. Ltd. v. BDH Chemicals Lid. [1971] 1 Q.B. 88; Parsons v. Utlley Ingham, above. The courts appear more ready to distinguish between different kinds of economic loss—and the fact that the plaintiffs loss was unusually large is one factor which may lead the court to say that it is of a different kind from that which was in the defendant's contemplation (such as different business losses in Victoria Laundry). This may be because unexpectedly high economic losses are indicative of a differentorder of risk undertaken by the defendant under the contract: The Pegase [1981] 1 Lloyd's Rep. 175, 184.

66 Hughes v. Lord Advocate [1963] A.C. 837; Vacwell Engineering Co. Ltd. v. BDH Chemicals Ltd., above, n. 65, at pp. 108–110.

67 For example, foreseeability is not a sufficient criterion for recovery of psychological harm to the person, at least (after Page v. Smith [1996] 1 AC. 155) where the plaintiff is a "secondary victim"; nor is foreseeability of damage to property sufficient to give rise to a duty if there are other considerations which, in the circumstances, make it unfair, unjust and unreasonable to impose such a duty: Marc Rich & Co. AG v. Bishop Rock Marine Co. Ltd. [1996] 1 A.C. 211, 235.

68 C. civ. art. 1150: the translation is Sedgwick's, quoted by Parke B. at (1854) 9 Ex. 341, 346.

69 Similarly, punitive damages are not available for breach of contract: Ruxley Electronics and Constructions Ltd. v. Forsyth [1996] 1 AC. 344, 353. One reason for the different French approach is that there is a general requirement that a contract be performed in good faith (c. civ. art. 1134); making an intentional contract-breaker liable for unforeseeable losses can therefore be seen as a sanction of his bad faith: Terre, Simler & Lequette, Droit civil: Les obligations (5th ed, Paris 1993), para. 540.

70 Cooke, , [1978] C.L.J. 288, 291Google Scholar, argues that deliberate breaches of contract should not attract the more restrictive Hadley v. Baxendale rule of remoteness. Some would say that it can sometimes be notonly acceptable for a contract to be broken, but the rules of contract should even facilitate it in the interests of wider economic advantages. However, this does not necessarily prevent a higher measure of recovery of damages in such cases: so-called "efficient breach" could cover the situation where it is economically efficient for the breach to take place even on the basis that all the losses which result to the other contracting party must be paid for.

71 Gorris v. Scott (1874) L.R. 9 Ex. 125. See also South Australia Asset Management Corp. v. York Montague Ltd. [1996] 3 W.L.R. 87, 93.

72 The Wagon Mound (No. 2) [1967] A.C. 617, 639.Google Scholar

73 [1901] A.C. 495, 537.

74 [1969] 2 Q.B. 158, 167.

75 [1897] 2 Q.B. 57.

76 Winfield & Jolowicz on Tort (14th ed., London 1994), pp. 4849.Google Scholar

77 In South Australia Asset Management Corp. v. York Montague Ltd. [1996] 3 W.L.R. 87, 94 Lord Hoffmann (although not speaking specifically in relation to the remoteness rules) said that "rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy". And (at pp. 96–97) he thought that there might be such a policy in cases of fraud, but preferred not to express a concluded view.

78 Bettelv. Yim (1978) 88 D.L.R. (3d) 543, which contains a detailed analysis of the reasons for and against a remoteness testof foreseeability in intentional torts, but decides against such atest for reasons of policy and authority; Allan v. New Mount Sinai Hospital (1980) 109 D.L.R. (3d) 634, 643.

79 For example, if the defendant intended to cause physical harm, but in consequence the plaintiff suffered a personality change and incurred the economic loss of having to compensate victims of his own physical attacks. Such losses were held to be tooremote in the tortof negligence, in Meahv. McCreamer (No. 2) [1986] 1 All E.R. 943. It may be that the courts would flinch from awarding such losses under the Wilkinson v. Downton principle on the basis either that there was a break in the chain of causation, or (the alternative ground in Meah) on public policy grounds.

80 [1987] 1 N.Z.L.R. 459. At p. 462 Cooke P. gave a range of considerations which led him to the conclusion that the damage in question was not recoverable: these follow from his published views in [1978] C.L.J. 288, and include the facts that there was no intention to cause the particular loss; the loss was economic and did not involve personal injury; and the building owner could be expected to insure against such losses.

81 (1868) L.R. 3H.L. 330.

82 Clerk & Lindsell on Torts (16th ed., London 1989), para. 25.09.Google Scholar

83 In England, at least. For Australia, see Burnie Port Authority v. General Jones Ply. Ltd. (1992–94) 179 C.L.R. 520, 556–557.

84 Cambridge Water Co. v. Eastern Counties Leather plc [1994] 2 AC. 264, 306.

85 Ibid., at p. 305.

86 [1991] 1 Q.B. 283.

87 [1970] A.C. 1004; see, for example, Lord Reid at p. 1030.

88 Smith v. Eric S. Bush [1990] 1 A.C. 831, 865.

89 [1991] 1 Q.B. 283, 301.

90 Theaker v. Richardson [1962] 1 W.L.R. 151.

91 Hulton v. Jones [1910] A.C. 20; Newslead v. London Express Newspaper Ltd. [1940] 1 K.B. 377.

92 [1996] 3 W.L.R. 87, 93.

93 Gorris v. Scott (1874) L.R. 9 Ex. 125: see p. 508 above.