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Unformatted text preview: contract-breaker is assumed to
possess whether he actually possesses it or not, there m a y have to be added in a particular case
knowledge which he actually possess, of special circumstances outside the "ordinary course of
things", o f such a kind that a breach in those special circumstances would be liable to cause more
loss. S uch a case attracts the operation of the "second rule" so as to make additional loss also
98 recoverable. An important assumption, often overlooked with respect to the limbs of this famous r
is the assumption imported through the doctrine of stare decisis that the first limb
a static environment with respect to the damages which should be recovered. It is a precedent, set by the judiciary, regarding the level of knowledge imputed to the gen class of contractors of the class in consideration. Factors regarding the trade invol perhaps the commercial environment, and the court-imposed standard for that reasonab
contractor will be scrutinised by the court to ascertain the level beyond which the
will no longer sanction the defendant and order recovery of losses incurred by the plaintiff. The prohibition of further recovery will be enforced unless the plaintiff
produces evidence to satisfy the court that the defendant had requisite additional knowledge to make it just that the defendant should bear the loss, thus falling unde second limb of the rule. The courts, though, often operate quite removed from changi
social circumstances. Decades after economists have renounced earlier economic doctrines, or reformed them in line with social circumstances, judges and lawyers mi 97
98 Koufos v C. Czarnikow Ltd.  1 A .C. 3 50 at 386-7 per Lord Reid.
 2 K .B. 5 28 at 539-40. 231 still be calling them 'new' or 'modern'. The precedent of a former decision dictating which factual contractual characteristics fall into either the first or second limb wil assistance, or hindrance to a litigant, but will effectively render the analysis legally
Thus, the implication that a judicial stasis is imported into the rule of Hadley, is
unavoidable.100 There is at least one consideration, however, that militates against the assertion of judicial stasis. The courts rule within the confines of the case at bar, in particular t
evidence presented in each case which affects the level of expectation which might be
imputed to the contractors. It is open to the plaintiff to lead evidence that shows the
of knowledge in the environment of the contracting parties. The courts may, therefore,
impute a different, more or less stringent level of knowledge depending on the evidence of the instant case as long as in the judgment ratio of the case no prior legal principl overly strained in the damages awarded. If, in the judgment of a lower court, damages ar awarded such that an error of law can be alleged by either the defendant or the plaintif
may give rise to appeal. If a principle is broken by a judgment in the High Court of
Australia, then the law is simply changed within the jurisdiction. Adding to this "muddle"101 the courts have had to deal with the imprecision of the
language of the rule as originally stated. The 'first limb' of the rule in Hadley v
Baxendale contains the words "natural", and "usual" course of "things", all of which
are words which cannot be strictly defined. The courts have had to deal with this "Atiyah, 1979, p. 666.
This point will be mentioned again in Chapter Nine.
Simpson, A. W . B. 1988, Legal Theory and Legal History, London, Hambledon Press, p. 381.
Simpson's criticism of the c ommon law will be more fully examined in Chapter Eight which analyses
public policy in the courts.
9 E X 345 at 355;  156 E.R. 145 at 151. 232 imprecision in later cases, struggling to perfect a subsequent rule which conforms to its
common law master and yet overcomes trenchant criticism from litigants for violation of
'certainty' in the law:
In order to m a k e the contract breaker liable under either rule it is not necessary that he should
actually have asked himself what loss is liable to result from a breach. A s has often been pointed
out, parties at the time of contracting contemplate not the breach of the contract, but its
performance. It suffices that, if h e had considered the question, he would, as a reasonable man,
have concluded that the loss in question w a s liable to result. N or, finally, to m a k e a particular loss
recoverable, need it be proved that upon a given state of knowledge the defendant could, as a
reasonable m a n , foresee that a breach must necessarily result in that loss. It is enough if h e could
foresee it w as likely to result. It is indeed enough... if the loss (or some factor without which it
would not have occurred) is a "serious possibility" or a "real danger". F or short, w e have used the
word "liable" to result. Possibly the colloquialism "on the cards" indicates the shade of meaning
with approach to accu...
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