Victoria Laundry v. Newman Industries Ltd. (1949) 2 KB 528

Introduction:

This is case where providing clear knowledge of circumstances leading to loss of profit imposes a liability on the party that breaches the contract. Victoria Laundry v. Newman Industries Ltd. (1949) is a case where the rule laid down in Hadley v. Baxendale was re- examined on the ground of foreseeability or knowledge of the defendant to claim damages by the plaintiff. The rule that Hadley v. Baxendale laid down was that the plaintiff cannot claim damages in special circumstances where the defendant is not aware off while entering into the contract. This case modified this rule and added the term foreseeability to the rule. The rule in this cases states that only those damages can be claimed or recovered by the plaintiff that can be reasonably foreseen by the defendants. If the damages cannot be reasonably foreseen by the defendants the it cannot be recovered or claimed.
The brief facts of this case is that Victoria Laundry Ltd ordered a large boiler from Newman Industries Ltd in contemplation of some lucrative dyeing contracts. Newman Industries were aware of the nature of Victoria Laundry Ltd.’s business, and that it was intended for the boiler to be put to use as soon as possible. The delivery of the boiler was delayed by five months and Victoria Laundry Ltd. claimed for breach of contract. The issue arose as to whether Newman Industries being aware of the Victoria Laundry’s nature of business can be held liable and whether Victoria Laundry can recover damages from the Newman Industries.

Background:

Victoria Laundry v. Newman Industries (1949) is an English Contract Law case that bought about the principle of remoteness of damages. Victoria Laundry (plaintiff) bought a large boiler for use in their dying and laundry business. The Newman Industries (defendant) was aware that they wanted to put it to immediate use and knew the nature of their business. The delivery of the boiler was delayed in breach of contract and the plaintiffs brought an action for the loss of profit which the boiler would have made during the period in which the delivery was delayed. The claim contained a sum for a particularly lucrative contract which they lost due to the absence of the boiler. The plaintiffs sued for damages and for loss of profits on the grounds that the large number of customers they could have taken had the boiler been installed and the amount they could have earned under a special dying contract. The defendant knew that the plaintiffs were launderers who wanted the boiler for immediate use. The Court of Appeals held that reasonable foreseeability existed on the part of the defendants and hence the plaintiffs could recover the damages(lost profits). Damages could be awarded for losses which could have reasonably foreseen or expected to occur.

Analysis:

Victoria Laundry Ltd. v. Newman Industries (1949) is case where the question of Law arose with respect to reasonable foreseeability of the defendants. The basic principle of this case with regard to consequential damages was laid down in the case of Hadley v. Bexandale where the court held that defendants cannot be sued for damages or losses they are not aware off at the time of entering into the contract. Victoria Laundry’s case added an extra element to the rule emphasising on reasonable foreseeability and knowledge of expecting a damage to take place. The court viewed that reasonable foreseeability is depended upon knowledge and this knowledge is of two kinds. One is imputed knowledge which the defendant is assumed to know about the losses which was laid down in Hadley v. Bexandale’s case. This knowledge refers to knowledge in ordinary circumstances. Actual knowledge is an addition to the previous knowledge about the special circumstances of losses and the possibility that more loss shall occur as a result of this breach. The court also distinguished loss of profits from a lucrative dying contract as different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptance of liability for such losses. Justice Asquitch was of the opinion that the question is addressed to the time where the contract was made and it is assumed that the defendant undertook to bear any special loss which is referable to specific circumstances.
In the case of Kourfos v. C. Czarnikow Ltd. (1969) the House of Lords laid down three main principles with respect to reasonable foreseeability under:

  • “In case of breach of contract, the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach.
  • What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or at all events, by the party who later commits the breach.
  • Knowledge ‘possessed’ is of two kinds: one imputed, the other actual. Everyone, as a reasonable person, is taken to know the ‘ordinary course of things and consequently what loss is liable to result from a breach of contract in that ordinary course.’ But to this knowledge which a contract breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case -knowledge which he actually possesses, of special circumstances outside the ‘ordinary course of things’ of such a kind that a breach in those special circumstances would be liable to cause more loss.”

The Judgement given by the Court of Appeal was an appropriate one and this rule conforms with law in present times. In India Section 73 of Indian Contract Act,1872 also lays emphasis on the element of reasonable foreseeability and rewards compensation only in the cases where circumstances cannot be reasonably foreseeable. This law is also in line with Section 73 of the Indian Contract Act ,1872.Section 73 of the Indian Contracts Act ,1872 states that “ when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach”It further states that “When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.” The explanation to Section 73 states that “In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account.” Transfield Shipping Inc v Mercator Shipping Inc (2008) it was clear that the remoteness test is about identifying the scope of an implied assumption of responsibility by the defendant in the contract. Therefore, requires an assessment of the common expectation as to the scope of the defendant’s liability.
Hence, by these cases we can conclude that the judgement was an appropriate one makes the rules laid for the test of remoteness more specific and clear. This also provides legal protection for plaintiffs in case of grave losses which can be missed out only. Because of the defendant being unaware.

Conclusion:

The concept of reasonable foreseeability plays a very important role in examining the extent of damages. The impact this case was vast and it led to Indian Law also to include sections of consequential damages and also led the House of Lords to pronounce a judgement in a similar case to declare that knowledge or reasonable foreseeability plays an important role. Thus, this case adds another element to the underlying principle of consequential damages that was laid down in the case of Hadley v. Baxendale which is the element of reasonable foreseeability or knowledge. Reasonable foreseeability encompasses the plaintiffs claim which might not otherwise be relevant if the defendant was unaware or could not contemplate such damages. Therefore, both the cases have laid a foundation in Contract Law with regard to remoteness of damages.

AUTHOR

-Jagruthi Rao
Christ University