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Unformatted text preview: own law within the bounds of
the contract. The ability of contractors to provide for breach does not extinguish the
court's use of reasonableness and the 'reasonable man' test in determining for what, if
anything, the defendant will be held responsible through either his/her breach or neglect
T he crucial question is whether, on the information available to the defendant when the contract
was m ade, he should, or the reasonable m a n in his position would, have realised that such loss
was sufficiently likely to result from the breach of contract to make it proper to hold that the loss
flowed naturally from the breach or that loss of that kind should have been within his
contemplation. In Liesbosch Dredger v S.S. Edison (Owners) (1933), the court was called on to
determine if the losses incurred by a group of marine engineers with respect to the 85 Jaensch v Coffey (1984) 155 C.L.R. 5 49 at 584-5.
Ipp, D A . Hon. Justice 1992 "Problems and Progress in Remoteness of Damage" in Finn, P.D., Essays
on D amages, L B C , pp. 14-41, at p. 19.
 A C . 3 50 at 385; Jaensch v Coffey (1984) 155 C.L.R. 549 at 585.
86 226 reinstatement of a dredge lost by the gross negligence of the operation of a steamship,
was too remote. The defendants sought to avoid liability on the grounds of remoteness
for consequential losses from the plaintiffs' loss of the ability to perform a contract,
where the defendants' steam ship had negligently sank the plaintiffs dredge. Both the
Registrar in Admiralty, and the court at first instance had ruled they were not too remote.
The Court of Appeal reversed the lower court decision, and held that the recovery was to
be limited to the value of the vessel lost at the time of the event. The marine engineers
appealed to the House of Lords who agreed, holding the other losses, relating to the
frustrated contract, to be too remote. The House of Lords avoided the conceptual
criticism of the lack of attention to the contract losses by further holding that the loss
was to be the value of the vessel lost as a going concern at the time of loss. Although the
court held that some of the damages allowed at first instance were to be excluded, it
remitted the case back to the Registrar in Admiralty for assessment of damages, and held
that the value should have been allowed according to the rule announced above. "The
rule, however, obviously requires some care in its application; the figure of damage is to
represent the capitalized value of the vessel as a profit-earning machine, not in the
abstract but in view of the actual circumstances." ' This enabled the court to avoid confronting the difficult issue where the past cases had conceptually dictated that the los
was too remote for recovery, but where in any commercial sense the failure to award
compensation for the loss of the profits from the dredge performing the contractual
obligations would have been acutely unjust. 88 Liesbosch Dredger v S.S. Edison  A.C. 449 at 464. Cooke and Oughton 1989 have deprecated the
decision in Leisbosch, pointing out that i m ay be more distinguished than followed for what the authors
deem a manifestly inadequate award of damages, and question whether i forms part of Australian law. See
pp.131-138 227 T hus the courts have decided that damages awards should b e limited, a nd that there is n o authority for an unlimited liability with respect to contract, excluding consideratio respect to specific terms. Parties are free to express what damages are to be paid whe
breach occurs.89 In subsequent cases, the limits of the "usual course of things" has b een explored. In tort,
from 1921, as a consequence of the judgment handed down in Re Polemis, 90 the language used in assessing the remoteness of the damage from which to assess the awar was said to be the "direct and natural consequence of the act."91 This is very similar the language used in Hadley. In 1961 the Privy Council overturned Re Polemis citing t
change in the social environment as justification :
For it does not seem consonant with current ideas of justice and morality that for an act of
negligence, h owever slight or menial, which results in some trivial foreseeable damage the actor
should be liable for all consequences however unforeseeable and however grave, so long as they
can be said to be 'direct'. It is a principle of civil liability, subject only to qualifications which
have no present relevance, that a m a n must be considered to be responsible for the probable
consequences of his act.92 T he wider application, therefore, o f the principles of 'civil liability' b y Viscount Simonds above in the Wagon Mound can readily be seen to be available to the courts in contract, not just limited to tort law,93 to set the limits beyond which the defendant 89 Chaplin v Hicks  2 K .B. 786 at 790-91 per Vaughan Williams L.J. The ability of contractors to
provide for a breach is subject to the court's scrutiny of penalty clauses which, if ruled in terrorem will be
unenforceable. This is examine...
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