Contract: Causation and Remoteness Flashcards
(16 cards)
What are the two elements of causation in contract law?
Factual causation (the breach actually caused the loss) and legal causation (no intervening event breaks the chain of responsibility)
How is factual causation determined?
By asking if the defendant’s breach was a dominant or effective cause of the claimant’s loss, using a common-sense approach
What is legal causation and what can break the chain?
Legal causation asks if it is fair to hold the defendant responsible; a novus actus interveniens (an unlikely intervening event) can break the chain
What test decides if an intervening event breaks the chain of causation?
If the intervening act was not something one would objectively foresee as likely to happen, it breaks the chain of causation
Which case held that the claimant’s use of an obviously broken coupling broke legal causation?
Lambert v Lewis—using a known-broken trailer coupling was an unforeseeable intervening act that defeated liability
What is the first limb of the Hadley v Baxendale remoteness rule?
Damages that arise naturally, in the usual course of things, from the breach itself (losses ordinarily expected to follow)
What is the second limb of the Hadley v Baxendale remoteness rule?
Damages that were within the parties’ actual or imputed contemplation at contract formation as the probable result of breach because of special circumstances
How did Victoria Laundry v Newman apply the first limb?
The delayed boiler delivery caused ordinary lost profits from laundry operations, which were foreseeable and thus recoverable under the first limb
Why were the lost dyeing contracts in Victoria Laundry v Newman not recoverable?
Those highly lucrative contracts were too remote under the first limb and the defendants lacked actual knowledge under the second limb
How do courts decide which losses satisfy the first limb?
By considering what losses are normal in the usual course of business for that kind of contract without special knowledge
When must a claimant rely on the second limb to recover losses?
When the loss is unusual or far-reaching, requiring evidence that the defendant knew the special circumstances at contract formation
What is the principle of mitigation in contract damages?
The innocent party must take reasonable steps to minimize losses after breach; any avoidable losses are not recoverable
How is the reasonableness of mitigation judged?
By asking what a reasonable person in the claimant’s position would have done to reduce losses, not weighing actions too precisely against costs
Why did Pilkington v Wood refuse to require litigation to mitigate?
Because it was unreasonable for the claimant to embark on a complex, costly lawsuit merely to reduce losses
What duty to mitigate did Payzu v Saunders illustrate?
When offered substitute performance on reasonable terms (same goods for cash on delivery), the claimant should accept, or losses beyond that are not recoverable
Is there a duty to mitigate a debt or liquidated damages?
No—there is no obligation to mitigate when the claimant seeks payment of a fixed sum due under contract
