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Date: Fri, 1 Aug 2008 16:26 From: John Swan Subject: The Achilleas
I, too, am troubled and disappointed by the decision in The Achilleas. The problem with the opinions is that the judges start from the wrong place. Hadley v. Baxendale and the concept of remoteness, i.e., whether something is or is not foreseeable, are tests for stopping an award of damages, not for starting one. (I note that the Supreme Court of Canada makes the same serious mistake in both Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, and Keays v. Honda Canada Inc., 2008 SCC 39.) If one starts from the position that the plaintiff should be put in the position that it would have been in if the defendant had done what it should have done, i.e., the compensation principle, then one asks, “What was that position?” That position is determined principally by the reasonable expectations of the defendant. If, as a matter of fact, the defendant’s expectations in The Achilleas were shaped by the understanding of the shipping industry, the defendant’s damages must reflect that and what might in some abstract world be foreseeable is irrelevant. That the defendant’s expectations (and the plaintiff's undertakings) are the starting point and that remoteness or foreseeability are stopping places is made very clear by the language of Alderson B. in Hadley v. Baxendale when he says, with respect to the “special circumstances” , ((1854), 9 Exch. 341, at 354-55, 156 E.R. 145, at 151). For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. In other words, whether the defendant bears a particular risk of loss is dependent on the obligations it undertook and not on either what might in some sense have been foreseeable or what it might have been told by the plaintiff. The point is made even clearer in Horne v. Midland Railway Co. (1873), L.R. 8 C.P. 131 (Exch. Ch.) — incidentally a far more satisfactory “leading case” than Hadley v. Baxendale. My argument would then be that, if the defendants wanted more protection from what is, I assume, an obvious risk in the shipping industry, they would have had to buy it because the parties’ shared understandings — assuming, of course, that they can be proved — allocated the risks arising from breach so that the loss arising in the particular circumstances would be partly borne by the plaintiff itself. Again, on this basis, whether the risk of loss that was clearly foreseeable should be borne by the plaintiff or the defendant was not a question to be answered by any consideration of what might actually be foreseeable but on an examination of the contractual allocation of risk. In this respect I agree with Michael Bridge when he says:
I do not know what Michael has in mind when he uses the word “also”, but I would argue that the parties’ contractual responsibilities or undertakings are where any analysis of the extent to which one is liable for losses suffered by the other arising from a breach of contract has to start. I observe parenthetically that the casual assumption that Hadley v. Baxendale makes irrelevant what happens after the contract is made needs to be reconsidered. First, it is quite possible that undertakings given or assumed after the date of the contract can extend one party’s responsibility for any loss arising from a breach of contract. Second, the assumption has to be questioned when it is applied in the context of a relational contract, i.e., where, as with say, a franchise or a long-term distribution agreement, the parties’ expectations may change over the term of the contract.
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