Overview of Consequential (Special) Damages
Overview of Consequential (Special) Damages
1. Definition:
Consequential damages (also called special damages) are losses not directly caused by the breach but which result as a consequence of the breach.
They go beyond the immediate loss and cover additional losses suffered because of the breach.
These damages are recoverable only if they were foreseeable at the time the contract was made.
2. Difference from General Damages:
| Aspect | General Damages | Consequential (Special) Damages |
|---|---|---|
| Nature | Direct loss from breach | Indirect or secondary losses |
| Foreseeability | Presumed to arise naturally from breach | Must be specifically foreseeable |
| Examples | Cost to repair goods, difference in price | Loss of profit, loss of business, damage to reputation |
3. Key Legal Principle:
The famous rule in Hadley v Baxendale (1854) governs consequential damages:
Damages are recoverable if they:
Arise naturally from the breach (general damages), OR
Were reasonably contemplated by both parties at the time of contract (special damages).
4. Explanation Through Hadley v Baxendale (1854):
Facts: A mill shaft broke and was sent for repair. Delay in delivery caused the mill to stop, causing loss of profit.
Court held:
Only damages that were within the reasonable contemplation of the parties at contract formation were recoverable.
Loss of profit was not recoverable because the carrier (defendant) was not aware that delay would cause stoppage and loss.
5. Conditions for Recovering Consequential Damages:
The special damages must be:
Specifically communicated or known to the party breaching the contract before or at the time of contract.
Reasonably foreseeable as a probable result of breach.
If the breaching party is unaware of special circumstances, consequential damages are not recoverable.
6. Other Important Case Laws
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (1949)
Damages for loss of profit due to delay in delivery of a boiler were limited to those losses which could reasonably have been foreseen.
Loss from ordinary laundry business was recoverable, but loss from a special lucrative government contract was not, as it was not made known to the defendant.
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) (2008)
The UK House of Lords refined the rule, focusing on whether the type of loss was within the parties' assumption of responsibility.
Highlighted the importance of contractual context in assessing consequential damages.
7. Summary Table
| Aspect | Description |
|---|---|
| Definition | Indirect losses flowing from breach |
| Recoverability | Only if foreseeable or communicated |
| Leading case | Hadley v Baxendale (1854) |
| Key condition | Breaching party must know special circumstances |
| Examples | Loss of profit, business interruption |
8. Practical Note
Always communicate special circumstances when entering contracts if you want to claim consequential damages later.
Without notice, courts typically restrict damages to direct and natural losses.
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