Damages is it a game of probability or chance?

//Damages is it a game of probability or chance?

Damages is it a game of probability or chance?

legal update

When we talk about damages we’re normally referring to payments compensating someone for their loss of property or for an injury. In contract law, where one party breaches their obligations to another, a court might award a sum that rectifies the situation by putting the innocent party in the financial position that they would have been in had there not been a breach.

There are pretty firm limits surrounding whether or not a court will award damages for a financial loss caused by one party breaching the contract. The leading case of Hadley v Baxendale

[1854], involving the delivery of a crankshaft to a mill, holds that a loss must be the fair and reasonable result of a breach in order for damages to be awarded. In other words, the breach of a contractual obligation and the loss cannot be too remote from one another.

Victoria Laundry Ltd. V Newman Industries Ltd. [1949] illustrates the point rather well. In this case, the claimant had purchased a large boiler for use in their laundry business and particularly for a highly lucrative government contract they had just been awarded to wash uniforms for the MOD. The defendants were well aware that the laundry intended to put the boiler to immediate use but had no idea that their customer was vying for a valuable contract. Inevitably, the delivery of the boiler was delayed causing the Victoria Laundry to lose revenue, being unable to fulfil their usual workload. In addition, the MOD withdrew their contract meaning that the laundry lost out on a particularly profitable deal. Victoria Laundry took Newman industries to court, seeking damages for both the loss of their usual revenue whilst they waited for the delivery of the new boiler AND for the loss of the potential profits the MOD contract would have afforded them. When the case came to court, only the damages for loss of usual business were awarded whilst those for the loss of the MOD contract were denied – the defendant wasn’t aware of the contract and the loss of that revenue wasn’t directly caused by the late delivery of the boiler.

On the whole, you’d be forgiven for thinking that the process of awarding damages is simple. Based on such leading cases as Victoria Laundry Ltd v Newman Industries, the formula comes down to whether a loss was clearly related to a breach of contract and whether it was foreseeable. As with most legal matters, however, the true state of the law on damages is not quite that simple.

Lost Chances

In a more recent case, Anthony McGill v Sports & Entertainment Media Group & 8 Ors [2016], the Court of Appeal has reminded us that even when it can’t be proved that a breach caused a loss of profit, damages still might be awarded for the loss of the CHANCE to make profit.

In McGill v Sports & Entertainment Media, a sports agent agreed with a football player that he would act for him in attempts to gain a better contract with Aston Villa FC. When that player contracted with another agency for a move to Bolton, the agent claimed damages for the lost chance of earning a commission on his original deal. This claim was made despite the fact that in the court of first instance, it was found that the probability of the agent securing commission was less than 50% – his agreement with the player was only oral.

When it came to the Court of Appeal, somewhat surprisingly it was found that the agent could claim for his ‘loss of chance’ to earn commission even despite the chances of that being under 50%. It was successfully argued that when it comes to claims of this nature, the court needs to consider how the acts of third parties would have affected matters in addition to the results of a contractual term being breached. In this respect, the law relating to damages for breach of contract has come down to hypotheticals and balancing probabilities.

It might seem to be a far-fetched attempt at making a quick buck, but this principle actually holds its weight in the legal world. In two previous cases, Allied Maples and Wellesley, the courts have upheld damages claims for “loss of chance to earn” and so there is precedent for damages to be awarded.

Moving from the solid and certain realms of causation in Hadley v Baxendale and Victoria Laundry to the more confusing and somewhat arbitrary “loss of chance” damages in McGill v Sports & Entertainment Media Group, the law on damages for breach of contract is a fast evolving creature. If the laundry case had been decided today, perhaps they would have been awarded damages for the loss of the chance to complete their MOD contract, but with the courts regularly changing their stance it’s hard to pinpoint how things could have been decided differently.

In any case, the development of “loss of chance to earn” damages shows just how many avenues of liability there are in the commercial world today. The team of consultants at Devant can help you find the best route for you to seek or avoid damages – contact us for an initial chat today.

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Callum Sommerton
The Butler, Devant

2017-02-19T13:49:45+00:00

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