What Are The Limitations Upon An Action For Damages Or A Claim For Equitable Relief?

A key limitation upon an action for damages is that damages can only be recovered for losses which are not too remote, with the test in contract being stricter than the test in tort. The two-limb test is set out in Hadley v Baxendale [1854], which requires that the loss should (i) arise according to the natural course of things flowing from such a breach or (ii) that the loss is such as may reasonably be in the contemplation of both parties, at the time they made the contract, as the probable result of breach. The limbs have, however, generally been interpreted as part of a general test which is whether the type of loss was reasonably foreseeable in light of the actual knowledge of the defendant at the time of contracting or indeed the knowledge which he should have possessed (per Asquith LJ in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949]). The six major cases after Hadley (Victoria Laundry, The Heron II [1969], Parsons Uttley Ingham [1978], Brown v KMR Services [1994], Jackson v Royal Bank of Scotland [2005] and most recently The Achilleas [2008]) have all redefined the remoteness test but with different reasoning. In the Victoria Laundry and The Heron II, it is submitted that a restrictive view of the remoteness test is taken, with Asquith LJ stating in his sixth proposition in the former case that although a reasonable man need not foresee that the breach must necessarily result in the loss, there must be a 'serious possibility' that it must do so.

The decision of the House of Lords in The Heron II also affirms the view that a higher degree of foreseeability is required in contract than in tort, although their Lordships seemed to differ in their choice of wording, with Lord Reid adopting that the probability of loss must be foreseen as a 'not unlikely' consequence. In Parsons, however, the majority of their Lordships phrased the test at a high level of generality. The approach adopted in this case is that it is only the type of loss that needs to be foreseen and not the extent of that loss, therefore restricting the impact of the remoteness test as a limitation in a claim for damages. This reasoning would also cause the decision in Victoria to be doubted, given that both the ordinary and exceptional losses in that case were loss of profit. In the Brown and Royal Bank of Scotland cases, the Parsons approach was adopted casting further doubt on the correctness of the Victoria decision and redefining the Hadley test for remoteness further.

A significant re-examination on the value of the remoteness limitation in English contract law can be seen in the recent decision of their Lordships in The Achilleas. In the decision of the lower courts, it was held that the loss was not too remote and the lost fixture could be reasonably foreseen by the parties as a not unlikely consequence of the late redelivery of the carrier. In overturning the lower courts, there can be two different approaches seen in the reasoning of their Lordships. Lord Roger applied the orthodox remoteness test concluding that although the lost fixture may have been contemplated, the financial consequences of the late redelivery could not, especially given the volatile market conditions. The problem with this approach is that it conflicts with the line of authority starting from Parsons , which suggests that it is only the type and not the extent of the loss that needs to be foreseen.

The more radical approach can be seen from the judgment of Lord Hoffmann. He regarded the satisfaction of the remoteness test as a prima facie assumption that is rebuttable by showing that the defendant would not reasonably have been regarded to have assumed responsibility for the losses flowing from the breach. In applying the scope of duty test in SAAMCO [1997], Lord Hoffmann reasoned that this is the distinction that differentiates the types of loss that can be recoverable. On this basis, the decision in Victoria Laundry can be explained by virtue of the fact that the dyeing contracts were a different type of risk from the general risk of loss of profits. As a result, on the facts of The Achilleas, the damages were too remote on the basis that the parties could not have considered the defendant to have accepted the risk flowing from the lost fixture. If we are to follow this approach in future cases, it is clear that the remoteness limitation will have been effectively replaced by a new test which requires a factual analysis of the parties' intentions as to the allocation of risk of breach.