Remoteness and mitigation

Contract damages are limited by two gatekeeping doctrines. Remoteness restricts recovery to losses within the defendant's assumed responsibility at contract formation, per Hadley v Baxendale: losses must either (i) arise naturally according to the usual course of things, or (ii) be reasonably in the parties' contemplation as a probable result of breach. The test requires foreseeability of the type of loss as a 'serious possibility' or 'not unlikely' (The Heron II)—stricter than tort's reasonable foreseeability. Mitigation prevents recovery for avoidable loss: though the claimant owes no duty to mitigate, they cannot recover losses that reasonable steps would have avoided (British Westinghouse). These doctrines ensure defendants bear only risks within the bargain struck, while incentivising efficient post-breach behaviour.

Hadley v Baxendale (1854) 9 Ex 341: Established the two-limb remoteness test—losses must arise naturally or be in reasonable contemplation at contract formation. Critical because it prevents open-ended liability for unforeseen consequences.

The Heron II [1969] 1 AC 350: Loss must be a 'serious possibility' or 'not unlikely' in contract (stricter than tort). Matters because it sets the probability threshold for remoteness.

The Achilleas [2008] UKHL 48: Remoteness ultimately concerns assumption of responsibility interpreted in commercial context, not merely foreseeability. Controversial 3:2 decision that introduces interpretive flexibility but creates uncertainty.

Victoria Laundry [1949] 2 KB 528: Foreseeability of the type of loss suffices, not precise quantum or mechanism. Important for distinguishing ordinary from special losses requiring communication.

British Westinghouse [1912] AC 673: No duty to mitigate, but claimant cannot recover avoidable loss; benefits from reasonable mitigation reduce damages. Foundational for understanding mitigation as limitation not obligation.

Courts apply remoteness and mitigation sequentially. First, remoteness: (1) Identify the type of loss claimed (physical damage, lost profits, wasted expenditure); (2) Ask whether this type was a natural consequence or within reasonable contemplation at contract formation; (3) Apply the 'not unlikely' threshold (The Heron II); (4) Consider whether The Achilleas applies—does commercial context suggest narrower assumption of responsibility? Second, mitigation: (1) Has defendant proved reasonable steps were available post-breach? (2) Would those steps have reduced loss? (3) Were the steps reasonable considering risk, burden, and uncertainty? Common triggers include delayed delivery (lost profits), defective goods (replacement costs), repudiation (substitute contracts), and market price movements.

Wrong remoteness test: Students cite tort's 'reasonable foreseeability' instead of contract's stricter 'not unlikely' standard from The Heron II. Mitigation as duty: Treating mitigation as an obligation rather than a limitation on recovery—the claimant need not mitigate but cannot recover avoidable loss. Timing confusion: Remoteness is judged at contract formation; mitigation post-breach—students often mix these temporal perspectives. Oversimplifying The Achilleas: Citing it as settled law without noting the 3:2 split, dissents, and subsequent restrictive interpretation.