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Remedies for breach of contract — SQE1 Contract question

A worked single-best-answer question on remedies for breach of contract, with why each wrong option is wrong — the way SQE1 traps candidates.

Remedies for breach of contract

Quill Print Ltd bought a printing press from Pressco Ltd for delivery on 1 May, telling Pressco that it needed the press to expand its business. Pressco delivered the press five weeks late. During the delay Quill lost ordinary printing work that would have earned it £4,000 profit per week. It also lost a one-off government contract that would have earned an exceptional profit of £100,000; Pressco knew nothing about this contract.

Which of the following best describes the damages Quill can recover from Pressco?

  1. AQuill can recover its lost ordinary profits of £20,000, but not the exceptional profit on the government contract.
  2. BQuill can recover both its ordinary lost profits and the profit on the government contract, because loss of profit was a foreseeable type of loss.
  3. CQuill can recover nothing for lost profits, because loss of profits is pure economic loss that is not recoverable in contract.
  4. DQuill can recover the profit on the government contract only, because it was a specific and identifiable loss.
  5. EQuill can recover all its losses, because Pressco should have asked what Quill planned to use the press for.
Show answer and reasoning
A is the best answer. Damages are recoverable for loss arising naturally in the usual course of things from the breach, and for other loss only if it was within the reasonable contemplation of both parties when the contract was made because of special knowledge (Hadley v Baxendale). As in Victoria Laundry v Newman Industries, ordinary lost profits from delay are recoverable, but the profit from an exceptionally lucrative contract unknown to the seller is too remote.

Rule: Loss arising naturally from a breach is recoverable, but loss arising from special circumstances is recoverable only if those circumstances were known to the defendant when the contract was made.

  • B Loss of exceptionally lucrative profits falls within the second limb of Hadley v Baxendale and is recoverable only if the defendant knew of the special circumstances. (wrong rule)
  • C Lost profits are recoverable in contract if not too remote. (wrong rule)
  • D This reverses the position: the ordinary profits are within the first limb, the special contract is not. (right rule, wrong facts)
  • E Remoteness depends on what the defendant knew or is taken to have known, not on what it could have asked. (wrong rule)

Source: Hadley v Baxendale (1854) 9 Exch 341; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528

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