Hadley v Baxendale

A 19th-century English decision adopted as the foundation of Canadian contract damages. Damages are recoverable for losses (1) arising naturally from the breach, or (2) reasonably contemplated by both parties at the time of contracting as the probable result of breach.

A miller's shaft broke. The miller engaged Baxendale, a carrier, to take it to the manufacturer for replacement. The carrier delayed delivery. The mill stood idle for the delay period. The miller sued for lost profits.

What damages are recoverable for breach of contract?

Lost profits not recoverable on these facts — the carrier had no notice of the unique circumstance (mill standstill).

Damages for breach of contract are measured by losses (1) arising naturally — that is, in the usual course of things — from the breach, OR (2) such as may reasonably be supposed to have been within the contemplation of both parties at the time the contract was made as the probable result of breach. Special losses require communication or knowledge of the special circumstances.

Alderson B held that allowing all consequential losses would over-compensate; restricting to losses within the parties' actual or imputed knowledge respects the negotiated allocation of risk. The mill standstill was not communicated to the carrier, so it fell outside both limbs.

Adopted in Canadian common law and applied in every contract-damages case. Honda v Keays (2008) confirms the framework applies to mental-distress damages in employment dismissal.

Hadley v Baxendale (1854) 9 Exch 341, [1854] EWHC J70.

Alderson B, Parke B, Martin B