Direct loss and/or expense - Building Contract Claims - page 86

upon the knowledge of the parties of special circumstances and they are
often referred to as 'special damages'. For example, suppose Ms A buys a
car from Acme Used Cars and drives it away intending to use it immedi-
ately to drive to Southampton, there to start a pre-booked cruising holiday.
Further suppose the car breaks down on the way to Southampton so that Ms
A does not reach the ship in time before its departure. Ms A can certainly
claim the cost of necessary repairs to the car, but she cannot claim the cost of
the lost holiday, because Acme knew nothing of the projected holiday or the
consequences of a mechanical breakdown. If all those facts had been made
known to Acme before or at the time of the sale contract for the car, Ms A
might have been able to claim the cost of the holiday also. In practice, it is
unlikely that Acme would accept such a liability and there may well be a
clause in its sale contract to deal with that eventuality, but the principle
remains.
It is only the remoteness or the entitlement of a party to damages which is
considered here; the amount of damages is a separate issue which will be
considered later.
A useful explanation of this decision and of the authorities generally was
given in Victoria Laundry (Windsor) v. Newman Industries, Coulson & Co 261 .It
took the form of propositions which may be summarised as:
(1) The purpose of damages is to put the injured party in the same position,
so far as money can, as if his rights had been observed, but to pursue
that purpose would provide him with a complete indemnity and it is
considered to be too harsh.
(2) The injured party may only recover loss reasonably foreseeable at the
time of the contract.
(3) Foreseeability depends on the knowledge of the party committing the
breach.
(4) Knowledge is of two kinds: (a) all reasonable people are assumed to
know the kind of loss which is liable to result from a breach in the
ordinary course of things; (b) actual knowledge of special circumstances
which may cause greater loss.
(5) The contract breaker will be liable provided that, if he had to ask
himself, he would have concluded, as a reasonable man, that the loss
was liable to result from that breach.
(6) It is enough if the loss could be seen as likely to result.
These propositions were considered by the House of Lords in The Heron
II 262 . Although they rejected proposition 6 as being too broad, they did not
agree the test which should be substituted. Taking the opinions together, it
is enough if the loss was a serious possibility appears to be a reasonable
consensus. The crucial point which lies at the foundation of the rule in
Hadley v. Baxendale , is the knowledge possessed by the contract breaker at
the time the contract was entered into. The point is whether he had just
261 [1949] 1 All ER 997 at 1002 per Asquith LJ.
262 Koufos v. Czarnikow Ltd (The Heron II) [1969] 1 AC 350.