Hadley v. Baxendale: Which Losses You Can Claim for a Broken Contract
When a contract is broken, the injured party can claim damages. But not every loss that follows is recoverable. The rule courts use to decide which losses count comes from an 1854 English case, Hadley v. Baxendale, which Canadian courts still apply today.
- You can recover losses that arise naturally from the breach, in the usual course of things.
- You can also recover other losses that both parties reasonably contemplated when they made the contract.
- Unusual losses that the other party didn't know about generally can't be recovered.
- If a loss could be significant, tell the other party about it when the contract is made.
The case
The Hadleys ran a mill. Its crankshaft broke, and they hired a carrier, Baxendale's company, to take it to an engineer so a new one could be made. The carrier delayed the delivery, and the mill was idle longer than it would have been. The Hadleys claimed their lost profits. The court held they could not recover them, because the carrier didn't know that the mill would stay shut until the shaft came back: mills often had a spare.
The two kinds of recoverable loss
- Losses that arise naturally from the breach: the ordinary consequences anyone would expect, such as the cost of hiring someone else to finish the job.
- Losses the parties reasonably had in mind at the time of the contract as a probable result of a breach, because of special circumstances that were communicated.
In Small Claims Court
- A contractor who walks off a job: the extra cost of hiring someone else to finish it is usually recoverable.
- Lost business from a late delivery is recoverable if the supplier knew the delivery was critical.
- Mental distress damages are recoverable where peace of mind was part of what the contract was for, as the Supreme Court held in Fidler v. Sun Life.
- You must also take reasonable steps to limit your losses (mitigation).
Photos from Pexels: The scales of justice beside a laptop · Studying at a desk in a library.
This article is general information for people in Ontario, not legal advice. Rules, forms and deadlines change, and every situation is different. Check the current rule or speak to a licensed legal professional before you act.
Not sure where you stand? A licensed paralegal can look at your documents and tell you your options.
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