BE 4605: Claim Management Course Work

CONSTRUCTION CASE LAW

Eshantha Samarajiwa

CASE 1: HADLEY v BAXENDALE (1854)

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Facts of the Case - Background

Hadley v Baxendale (1854) is a leading English Contract Law Case. It sets the basic rule to determine consequential damages from a breach of contract. The incidents took place in Gloucester, a major city in England.

Map of England
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Facts of the Case - Claimants

The Claimants were two brothers - Joseph and Jonah Hadley who owned the City Flour Mills. The mill was built in 1850 and milled wheat imported through Gloucester docks to make flour, sharps & bran.

City Floor Mills - c.1920s

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Facts of the Case - Claimants

Their venture was highly successful and a warehouse was built and installed with 2 steam engines and other machinery to double the output of the mill.

The renovated mill - 2007

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Facts of the Case

The crankshaft of one of the steam engines broke which rendered the mill inoperable. In the 1850s there were no standardized replacement parts available. The original manufacturers replacement parts. custom made the

An old steam engine

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Facts of the Case

The manufacturer needs the broken crankshaft as a model to create a new replacement part that will fit with the other custom made machinery of the mill. The broken part had to be sent to the manufacturer who was in Greenwich, nearly 200kms away. Hadley had to get the service of a transporter to get the broken crankshaft to the manufacturer.

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Facts of the Case - Defendants

Hadley hired Pickford & Co to transport the broken shaft to the manufacturer by a certain date at a cost of 2 and 4 shillings. Pickford & Co is a moving company based in the United Kingdom which was founded in the 17th century. During that time Joseph Baxendale was the senior partner of the transporter Pickford & Co.

Transport Truck of Pickford & Co.

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Facts of the Case - Litigation

Hadley told the transporter that the shaft must be sent immediately and promised to deliver it the next day. The transporter (Baxendale) did not know that the mill would be inoperable until the new shaft arrived. However due to negligence and the crankshaft was delivered 5 days late which caused the mill to remain idle for additional 5 days. The Hadley brothers sued Joseph Baxendale and claimed for damages due to lost profits and wages paid to idle workers.

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Facts of the Case - Judgement

The jury awarded Hadley damages of 25 at the initial hearing at Assize court of Gloucester.

Eshantha Samarajiwa

Facts of the Case - Judgement

The defendant Baxendale considered that this was unreasonable and too remote and appealed to the Court of Exchequer. He competed that he did not know that Hadley would suffer any particular damage by reason of the late delivery.

Court of Exchequer
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Facts of the Case - The Issue

What is the amount of damages to which an injured party is entitled for breach of contract?

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Key Contractual & Legal Principles

Before Hadley v Baxendale the usual legal principle was the claimant is entitled to the amount he would have received if the breaching party had performed. The plaintiff is placed in the same position he would have been in had the breaching party performed. Under this rule, Hadley would have been entitled to recover lost profits from the 5 extra days the mill was inoperable.

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Upheld Principles by Judges

The Court of Exchequer Chamber during that time was led by judge Baron Sir Edward Hall Alderson. The Court declined to allow Hadley to recover loss of profits.

Judge Baron Alderson

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Upheld Principles by Judges

It was held that Baxendale could only be held liable for losses that were generally foreseeable. If Hadley had mentioned his special circumstances in advance he would have recovered loss of profits. Just because a party is sending something to be repaired does not indicate that they would lose profits if it were not delivered on time. Where special circumstances exist provisions can be made in the contract to impose extra damages for a breach.

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Upheld Principles by Judges

This landmark case of Hadley v Baxendale established the foreseeability of damages rule in English Law. It sets down the principles which any jury should consider when estimating damages.

The Plaque in City Flour Mills

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Upheld Principles by Judges

An injured party may recover those damages reasonably considered to arise naturally from a breach of contract, or those damages within the reasonable contemplation of the parties at the time of contracting.
Arises naturally with the usual course of breach Needs to be contemplated by parties or Include additional provisions for extra damages

Direct losses

Recoverable Losses
Indirect & Consequential losses

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Upheld Principles by Judges

So before the mill operator can get consequential damageswages paid and sales lost while the mill was idlethey must prove that the shipping company contemplated those damages as a risk of agreeing to ship the broken crankshaft. Requiring that proof of contemplation helps ensure the shipping company had the opportunity to consider the extra risk and decide whether to raise their price above the customary 2.

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References
http://www.gloucesterdocks.me.uk/studies/pridaysmill .htm http://lawprofessors.typepad.com/contractsprof_blog/ 2005/06/hadleys_mill.html http://www.constructionlawtoday.com/2009/06/conse quential-damages-in-construction-contracts-andarchitects-agreements-part-3-why-treat-consequentialand-direct-damages-differently/ http://www.lawnix.com/cases/hadley-baxendale.html http://en.wikipedia.org/wiki/Hadley_v_Baxendale http://legaldictionary.thefreedictionary.com/Foreseeability

References
http://mtweb.mtsu.edu/cewillis/Hadley%20v %20Baxendale.pdf