A heavy manufacturing firm, IronWorks Ltd, contracts with a courier to deliver a vital machine part. The courier is late, causing IronWorks to halt production for three days. IronWorks claims for normal lost profits and the loss of a highly lucrative, secret government contract. Under the rule in Hadley v Baxendale, which losses are recoverable?

Answer options:

Both the normal lost profits and the loss of the government contract.

Only the normal lost profits, as they arise naturally from the breach.

Only the loss of the government contract.

Neither loss is recoverable.

How to approach this question

Apply the two limbs of the remoteness of damage test from Hadley v Baxendale.

Full Answer

B.Only the normal lost profits, as they arise naturally from the breach.✓ Correct

Hadley v Baxendale establishes two limbs for remoteness of damage: 1) losses arising naturally from the breach (normal profits), which are recoverable; and 2) losses arising from special circumstances, which are only recoverable if communicated to the defendant at the time of contracting. The secret contract was not communicated, so it is too remote.

Common mistakes

Assuming all consequential losses are recoverable regardless of foreseeability.

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