Lloyd's Maritime and Commercial Law Quarterly
Contractual interpretation and remoteness
Paul CK Wee *
In The Achilleas, a bare majority of the House of Lords adopted a novel, agreement-centred approach to remoteness under which limits on recovery for breach are determined by the parties’ agreement, not external rules of law, even in the absence of express provision for the consequences of breach. This approach risks obscuring what the general process of contractual interpretation requires in different contexts to reach different conclusions, and the uncertainty and imprecision that this invites is illustrated by The Achilleas itself. Further and more precise problems are faced in the remoteness context.
I. INTRODUCTION
Alderson B famously stated in Hadley v. Baxendale:1
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”.
For Lord Hope of Craighead, the rules identified in Hadley v. Baxendale “are very familiar to every student of contract law. Most would claim to be able to recite them by heart”.2 For over 150 years, this dictum of Alderson B, as interpreted and restated in subsequent cases,3 provided the starting point for the remoteness inquiry. The modern effect of these rules can be expressed in a single formulation as follows: a type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting (and on the assumption that the parties actually foresaw the breach in question), it was
* Formerly of Keble College, Oxford. I am grateful to Ed Peel for his helpful comments on earlier drafts, and to Adam Kramer for insightful discussion on the matters discussed herein.
1. (1854) 9 Exch 341, 354; 156 ER 145, 152.
2. Jackson v. Royal Bank of Scotland [2005] UKHL 3; [2005] 1 WLR 377, [25].
3. Most notably Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd [1949] 2 KB 528 (CA) and Koufos v. C Czarnikow Ltd (The Heron II) [1969] 1 AC 350 (HL). Cf Parsons (Livestock) v. Uttley Ingham & Co Ltd [1978] QB 791 (CA); Brown v. KMR Services Ltd [1995] 4 All ER 598 (CA) and Jackson v. Royal Bank of Scotland [2005] UKHL 3; [2005] 1 WLR 377. As Robert Goff J noted in Satef-Huttenes Albertus SpA v. Paloma Tercera Shipping Co SA (The Pegase)
[1981] 1 Lloyd’s Rep 175 (Com Ct), 181, “although the principle stated in Hadley v. Baxendale remains the fons et origo of the modern law, the principle itself has been analysed and developed, and its application broadened, in the 20th century”.
CONTRACTUAL INTERPRETATION AND REMOTENESS
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