CONSTRUCTION CASE LAW

Eshantha Samarajiwa

BE 4605: Claim Management Course Work

CASE 1:

HADLEY v BAXENDALE (1854)

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Map of England

• 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,

Facts of the Case - Background

a major city in England.

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City Floor Mills - c.1920s

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.

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The renovated mill - 2007

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.

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An old steam engine

Facts of the Case

• The crankshaft of one of the steam engines broke which rendered the mill inoperable.

• In the 1850′s there were no standardized replacement parts available.

• The original manufacturers custom made the replacement parts.

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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 200km’s away.

• Hadley had to get the service of a transporter to get the broken crankshaft to the manufacturer.

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Transport Truck of Pickford & Co.

• 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.

Facts of the Case - Defendants

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• 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.

Facts of the Case - Litigation

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• The jury awarded Hadley damages of £25 at the initial

hearing at Assize court of Gloucester.

Facts of the Case - Judgement

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Court of Exchequer

• 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.

Facts of the Case - Judgement

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What is the amount of damages to which an

injured party is entitled for breach of contract?

Facts of the Case - The Issue

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• 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.

Key Contractual & Legal Principles

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• 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.

Upheld Principles by Judges

Judge Baron Alderson

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• 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.

Upheld Principles by Judges

• Where special circumstances exist provisions can be made in the contract to impose extra damages for a breach.

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The Plaque in City Flour Mills

• 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.

Upheld Principles by Judges

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“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”.

Upheld Principles by Judges

Recoverable Losses

Direct losses Arises naturally with the usual

course of breach

Indirect & Consequential

losses

Needs to be contemplated by

parties or

Include additional provisions for

extra damages

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• So before the mill operator can get consequential damages—wages paid and sales lost while the mill was idle—they 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.

Upheld Principles by Judges

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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-and-architects-agreements-part-3-why-treat-consequential-and-direct-damages-differently/

• http://www.lawnix.com/cases/hadley-baxendale.html • http://en.wikipedia.org/wiki/Hadley_v_Baxendale • http://legal-

dictionary.thefreedictionary.com/Foreseeability

References

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