Remoteness of damage is an interesting principle especially when analyzing two specific cases.

They are apparently allocated in different areas of law, functioning in England and Wales. In first case claimant is Overseas Tankship (UK) Ltd and brings a suit against Morts Dock and Engineering Co Ltd.1 The case lays down principles relating to negligence in law of tort, more precisely remoteness of damage. Second case Hadley v Baxendale2 is sequentially leading case on remoteness of damage in contract law. This principle links these two cases together and also demonstrates differences between them. According to Oxford dictionary of law3 remoteness of damage is the extent to which a defendant is liable for the consequences of his wrongful act or omission. Cases mentioned above will be presented in light of this significant principle, which limit the types of loss that are recoverable.

First of all the facts of the cases are relevant to present principles in area of tort and contract law. The Wagon Mound No 11case is about the defendant's vessel, The Wagon Mound. It discharged furnace oil into Sydney Harbour. The wind and tide carried the oil beneath Claimant's wharf where on by Claimant's employees welding operations were being carried. Claimant's employees continued their work after being advised that they could safely weld. After about 55 to 60 hours the original discharge, molten metal set some waste floating in the oil on fire. The flames quickly developed into a large fire which spread rapidly causing destruction of some boats and the wharf. Liability turned on the question of whether the damage was foreseeable, since furnace oil has such a high boiling point it is unlikely to catch fire under normal circumstances. Answer is no because the defendant could not foresee that the oil discharged would be ignited when a piece of molten metal would fall upon a floating piece of cotton. Therefore it was held that defendant was not liable for the fire but liable for the fouling. Liability is founded on the consequences not the action involved.4 The decision in this case was relied on the test which is based on requirement that the damage
1 Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound (No 1) [1961] Privy Council 1 All ER 404

2 Hadley v Baxendale 1854 9 Exch 341

3 (2006) Oxford Dictionary of Law, Oxford University Press,

must be of a foreseeable type. According to Harpwood5 in negligence claims claimant has to establish that the defendant owes them a duty of care and is in breach of that duty. Then he also needs to demonstrate that the damage caused was not too remote. Originally a defendant was liable for all losses which were a direct consequence of the defendants breach of duty. Harpwood6 informs that it is called direct consequence test. This problem presents following case: Re Polemis & Furness Withy & Company ltd7. The decision was considered unfair when defendant could be liable for damage which was not foreseeable and therefore he/she could not take steps to prevent it. For that reason decision was overruled in the Wagon Mound No 1 and replaced with a new test for deciding if damages are too remote. Interesting how courts followed the reasonable foreseeability test established in Wagon Mound No 1 case. The test was considered and applied in Hughes v Lord Advocate.8 Cook9 declares that the key to the Wagon Mound test is what is meant by a kind of damage. The defendant is only liable for damage that is of a kind which is reasonably foreseeable. In Hughes v Lord Advocate the type of damage which has to be foreseeable type was not too remote. The House of Lords ruled that the plaintiff was able to claim damages for negligence. What was the reason? The Lords viewed the type of harm as the important factor. It did not matter whether the explosion was foreseeable. Consequently, as Harpwood10 relates: in essence, that people might suffer burns was the issue of
Per Judge Viscount Simonds in Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound (No 1) [1961] Privy Council 1 All ER 404

5 Harpwood Vivienne, Modern Tort Law, 2003, page 153

6 Harpwood Vivienne, Modern Tort Law, 2003, page 152

7 Re Polemis & Furness Withy & Company ltd [1921] 3 KB 560

8 Hughes v Lord Advocate [1963] AC 837

9 Cook John, Law of Tort, 2007, page 178

foreseeability. On the other hand in Doughty v Turner Manufacturing Company11 the damage was too remote. It was not foreseeable that an explosion would occur. Harpwood 10 gives entirely different explanation of the phenomenon. Whilst it may be foreseeable the lid may have caused a splash resulting in a scold. It was not foreseeable that an eruption would take place resulting in burns. Another problem is related to confusion as to whether in addition to being damage of a type which is foreseeable, the damage must occur in a foreseeable manner. Hughes v Lord Advocate case suggests not but in Tramain v Pike case12 circumstances were different. A herdsman discovered Weil's disease during his work on the defendants farm. The herdsman sued in negligence. The kind of damage suffered namely infection with a rare disease was seen as entirely different to what might be reasonably foreseen and that might result from a rat-bite. The defendant was not held liable because he could not foresee the risk of the initial infection (Cook13). In Jebson v. Ministry of Defence14 the Court of Appeal awards damages to a soldier who, while off duty and drunk, fell from a moving army lorry. His initial case was dismissed because his actions were considered not to be foreseeable. On appeal his case was upheld, it was found that he was owed a duty of care, even in his drunken state, and that his actions were foreseeable (Harpwood15). The House of Lords in Jolley v Sutton London Borough Council16
1 10 Harpwood Vivienne, Modern Tort Law, 2003, page 153

1 11 Doughty v Turner Manufacturing Ltd [1964] 1 QB 518

1 12 Tremain v Pike [1969] 3 All ER 1303

1 13 Cook John, Law of Tort, 2007, page 178

1 14 Jebson v. Ministry of Defence [2000] 1 WLR 2055

1 15 Harpwood Vivienne, Modern Tort Law, 2003, page 153

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confirms both that a special duty of care is owed to children and that the rules of foreseeability do not require the precise manner of an injury or its extent to be foreseeable. The test is: "Was the wider risk, which would include within its description the accident which actually happened, reasonably foreseeable?"17

Turning to contract law case- Hadleys18 (Claimants) were the owners of a mill where shaft broke rendering the mill inoperable. Hadley hired Baxendale (defendant) to transport the broken mill shaft to engineers of the manufacturer [Joyce & Company] as a pattern for a new one. Hadleys servant advised Baxendales clerk that the shaft must be sent immediately and, as the mill was stopped. Baxendale promised delivery for the next day and was paid 2 pounds 4 shillings. Baxendale did not know that the mill would be inoperable until the new shaft arrived. Baxandale was negligent and failed to perform as promised, causing the mill to remain shut down for an additional five days. Hadley sued for 300 pounds in damages due to lost profits and wages. Baxendale appealed. The issue was whether claimant can recover lost profits. The answer is no. If the Claimant had made it clear that the mills operation was dependent upon getting delivery immediately, the loss of profits would not have been occurred. Court upheld appeal. Indirect and consequential damages are only recoverable if they are reasonably foreseeable by both of the parties and arising naturally at the time of the contract. Although the fact that the mill was closed was communicated, it wasnt made completely clear to the defendant that the mill was closed because of the broken shaft and couldnt re-open again until it was fixed. For all the defendants knew, the mill was closed for another reason.19 A new rule was created in this case. According to Oxford Dictionary of law20 under this rule, the claimant will be able to recover losses arising naturally, according to the usual course of
Jolley v Sutton London Borough Council [2000] 3 AER 409

1 17 Per Lord Hoffmann in v Sutton London Borough Council [2000] 3 AER 409

1 18 . Hadley v Baxendale 1854 9 Exch 341

1 19 Per Anderlosn B in Hadley v Baxendale 1854 9 Exch 341

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things. This is the first limb of a test and second limb is slightly different. Where the unusual damage results from special circumstances that may be reasonably supposed to have been in the contemplation of both parties, at the time the contract was made, as a serious possibility if a breach occurred. First limb of the test is objective and refers to so-called common damages. As a consequence of the first limb of the rule in Hadley v Baxendale, the party in breach is deemed to expect the normal consequences of the breach, whether he actually expected them or not. Under the second limb of the rule, the party in breach can only be held liable for abnormal consequences where he has actual knowledge that the abnormal consequences might follow or where he reasonably ought to know that the abnormal consequences might follow (Taylor21). In Victoria Laundry v Newman Industries22 it was held that the ordinary loss of profits fell within the first limb and was recoverable. The exceptional profits on government contracts fell within the second limb and were not recoverable as the defendant had no knowledge that the boiler was required to fulfil unusually profitable contracts. Lord Asquith described the required degree of probability that the loss would occur as such that "a reasonable man" "could foresee" that the loss was "likely so to result," or a "serious possibility," or "a real danger," and the probability was "on the cards"23. Evolution of test of remoteness in contract law was also noticed in The Heron24 case. The plaintiff sued for the difference between the amount that would have been received if the contract had been performed and the amount the plaintiff actually got. Issue was whether the plaintiff shall receive the requested damages. However the rule was: If the loss is foreseeable, then it may be compensated. Courts argued about how serious the risk of loss must appear at the time of contract in order to be considered foreseeable.25
(2006) Oxford Dictionary of Law, Oxford University Press

2 21 Taylor & Taylor, Contract Law Directions, 2009, page 303

2 22 Victoria Laundry v Newman Industries [1949] 2 KB 528

2 23 Ziegel J., Duggan Anthony; Commercial and Consumer Transactions: Cases, Texts and Materials, 2002, page 684

2 24 Koufos v Czarnikow (C) Ltd, the Heron II (1969) 1 AC 350

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Cases presented above are evidences of existing differences between contract and tort in remoteness of damage. The most important distinction in my point of view is that a higher degree of foreseeability is required in contract than in tort. In breach of contract cases the question was, were the consequences of such a kind that a reasonable man at the time of the contract being made would have contemplated them as being substantially probable? In tort the question was, were the consequences such that a reasonable man would foresee them as being probable? It was suggested that the degree of probability in tort was lower than that of contract. When there is breach of contract and also the damage is physical, the tort test is applicable however the stricter contractual test is applicable to economic loss.26 In tort law there is a need to foresee the type of injury sustained by the claimant and not the extent and severity of it (Hughes v Lord Advocate; Jolley v Sutton London Borough Council). Conversely, contract law does focus upon extent and severity (Victoria Laundries case). Another, and more complex distinction, lies in the "temporal" requirements of each test. Foreseeability in tort law is important before the breach of duty is committed. Foreseeability in contract law becomes relevant after breach of contract. In both contract and tort there is an objective element in judging remoteness. In tort, the standard of foreseeability is that of the reasonable man. In contract, the imputed contemplation is judged by the standard of the reasonable man. 27In both cases, this objective assessment may be modified by the particular ability of the defendant to foresee or contemplate the type of loss in the circumstances. In tort, the test takes the reasonable man in the circumstances pertaining at the time the tort occurs. In contract, the circumstances are those within the contemplation of the parties at the time the contract was made.

To conclude the two important cases for remoteness in each branch of law are Wagon Mound (No 1) and Hadley v Baxendale for Tort and Contract respectively. The former case decides that a defendant will only be liable for damage which is a foreseeable consequence of the breach of duty and the latter case decides that a claimant can only recover damages for the consequences of a breach which were foreseeable (arising naturally) and, more obviously, for consequences which the defendant knew would occur. To demonstrate the connection between tort and

Cheshire, Fifoot & Furmstons Law of Contract, 2007, page 759

2 26
Per Lord Denning H. Parsons(livestock) ltd. V Uttley Ingham & Co. Ltd. (1978)

2 27 Harris D., Campbell D., Halson R., Remedies in Contract and Tort, 2005, page 315

contract in the area of remoteness of damage I may simply quote Treitel28 who says Developments in England suggest that the tort analogy may have pushed too far, but there is no doubt of its influence in the development of the foreseeability test in contract.

2 28 G.H Treitel, Remedies for breach of Contract- A comparative Account, 1998, page 152-153

Bibliography:

Beale H. G., Bishop W. D., Furmston M. P. Contract: Cases and Materials (New York: Oxford University Press, 2008), chapter 22 Cane Peter; Stapleton Jane The law of obligation: essays in Collaboration of john Fleming (New York: Oxford University Press, 2002), chapter 5 Cook John Law of Tort (Essex: Pearson Education Limited, 2007), chapter 8 Davies Martin; Oughton David M. Sourcebook on Contract Law (London: Cavendish Publishing Limited, 2000), chapter 13 Furmston M. P., Cheshire Geoffrey C., Fifoot Cecil H. S. Law of Contract (New York: Oxford University Press, 2007), chapter 21 Harris Donald; Campbell David; Halson Roger Remedies in Contract and Tort (New York: Cambridge University Press, 2005), chapter 20 Harpwood Vivienne Modern Tort Law (London: Cavendish Publishing Limited: 2003), chapter 8 Lunney Mark; Oliphant Ken Tort Law: Text and Materials (New York: Oxford University Press, 2008), chapter 5 Kelly David, Holmes Ann E. M., Hayward Ruth (London: Cavendish Publishing Limited, 2005), chapter 10 Peel Edwin, Treitel G. H., The law of Contract (London: Sweet & Maxwell, 2007), chapter 20

Strong S. I., Williams Liz Complete Tort Law: Text, Cases and Materials (New York: Oxford University Press, 2009), chapter 4 Taylor Richard, Taylor Damian Contract Law Directions (New York: Oxford University Press, 2009), chapter 11 Weir Tony An Introduction to Tort Law (New York: Oxford University Press, 2006), chapter 4 Ziegel J., Duggan Anthony Commercial and Consumer Transactions: Cases, Texts and Materials (Toronto: Emond Montgomery Publications Limited, 2002), chapter 17

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