Hadley v Baxendale (1854) 9 Exch 341
Established claimants may only recover losses which reasonably arise naturally from the breach or are within the parties’ contemplation when contracting.
The claimant, Hadley, owned a mill featuring a broken crankshaft. The claimant engaged Baxendale, the defendant, to transport the crankshaft to the location at which it would be repaired and then subsequently transport it back. The defendant then made an error causing the crankshaft to be returned to the claimant a week later than agreed, during which time the claimant’s mill was out of operation. The claimant contended that the defendant had displayed professional negligence and attempted to claim for the loss of profit resultant from the unexpected week-long closure. The defendant retorted that such an action was unreasonable as he had not known that the delayed return of the crankshaft would necessitate the mill’s closure and thus that the loss of profit failed to satisfy the test of remoteness.
Whether the loss of profits resultant from the mill’s closure was too remote for the claimant to be able to claim.
The Court found for the defendant, viewing that a party could only successfully claim for losses stemming from breach of contract where the loss is reasonably viewed to have resulted naturally from the breach, or where the fact such losses would result from breach ought reasonably have been contemplated of by the parties when the contract was formed. As Baxendale had not reasonably foreseen the consequences of delay and Hadley had not informed him of them, he was not liable for the mill’s lost profits.
Source from: https://www.lawteacher.net/cases/hadley-v-baxendale.php