Remoteness of Damage — Contract and Tort Explained

Remoteness of damageis the legal control on how far liability extends once a breach or wrong is proved. A defendant is not liable for every consequence of their conduct, however unusual — the law draws a line, and losses beyond that line are “too remote.” The test differs between contract and tort, and this guide explains both, the modern gloss on the contract rule, and how to apply each in a problem question, with links to the leading briefs.

Remoteness in contract: the rule in Hadley v Baxendale. The foundational authority is Hadley v Baxendale (1854), which lays down two limbs. Loss is recoverable if it (1) arises naturally, in the usual course of things, from the breach (the first limb — losses any reasonable person would expect); or (2) was within the reasonable contemplation of both parties at the time of contracting as a probable result of breach, because of special knowledge actually communicated (the second limb). In Hadleyitself, the carrier was not liable for the mill’s lost profits because it had not been told the mill was idle without the crankshaft.

Applying the two limbs. Victoria Laundry v Newman Industries (1949) restated Hadleyin terms of reasonable foreseeability: ordinary loss of profits from a delayed boiler was recoverable under the first limb, but the loss of an exceptionally lucrative dyeing contract was not, because the defendant did not know of it. The standard of likelihood in contract is higher than in tort — the loss must be a “serious possibility” or “not unlikely,” not merely foreseeable as a remote possibility.

The Achilleas gloss. In Transfield Shipping v Mercator Shipping (The Achilleas) (2008), the House of Lords suggested remoteness is not only about foreseeability but also about whether the defendant assumed responsibility for the type of loss — a ship returned late was liable for the going market rate, not the owner’s exceptional lost follow-on charter. The Achilleas is best treated as a refinement of, not a replacement for, Hadley: foreseeability remains the usual test, with assumption of responsibility relevant in unusual market cases.

Remoteness in tort: the Wagon Mound test. In negligence, the test is reasonable foreseeability of the kind of damage — The Wagon Mound (No 1) (1961), which replaced the older directness test. The defendant is liable only for harm of a type a reasonable person would foresee; the precise manner and extent need not be foreseen. The Wagon Mound (No 2) (1967) confirmed that even a small but real risk can be foreseeable.

Refinements of the tort rule. Two well-known qualifications soften foreseeability: the type of harm rule means liability follows once the kind of injury is foreseeable even if it occurs in an unforeseeable way; and the thin skull (eggshell skull) rule means the defendant takes the victim as they find them, so an unforeseeable extent of injury caused by a pre-existing vulnerability is still recoverable. These are typically learned alongside the wider law of negligence.

Contract vs tort: the key difference. Both use foreseeability, but the contract test is narrower. Contracting parties can allocate risk in advance, so liability is confined to losses within their contemplation at the time of the agreement and to a higher degree of probability. In tort there is no prior relationship, so the law asks only what a reasonable person would foresee at the time of the breach of duty. Distinguish remoteness (a legal limit on recoverable loss) from causation (whether the defendant caused the loss at all) — both must be satisfied.

How to use this in an exam. Identify whether the claim is in contract or tort, state the correct test, then apply it to the specific head of loss in issue — analyse each loss separately. In contract, ask which limb of Hadley applies and whether special knowledge was communicated; flag The Achilleas where the market loss is unusual. In tort, ask whether the kind of damage was foreseeable, then consider the thin-skull rule. Practise spotting remoteness arguments in our contract and tort past papers. Read this alongside our damages in contract law guide and negligence and duty of care guide, and explore the Contract Law and Tort topic hubs. Build recall with our flashcards and test application on our past papers.