Hadley v Baxendale (1854) 9 Exch 341

Court of Exchequer

Basic Facts: X was a mill owner who needed a new millshaft and contracted with Z to deliver it within a specified number of days. Z failed to deliver the shaft on time, causing X’s mill to be out of operation. X sought damages for the loss of profits during the downtime, claiming the delay led to substantial financial loss.

Issue for the Court: To what extent are damages awarded for consequential losses resulting from a breach of contract?

Held : The court established the principle that damages should be for losses that are naturally arising from the breach or those which were reasonably contemplated by the parties at the time of contracting.

• Damages are to be awarded for losses that:

• Naturally Arise: From the breach in the usual course of events.

• Reasonably Contemplated: By both parties at the time of making the contract if special circumstances are communicated.