Victoria Laundry (Windsor) Ltd v Newman Industries Ltd 12 Apr 1949 [1949] 2 KB 528, CA

A laundry company sued for late delivery of a boiler, claiming loss of regular business and lucrative government contracts. The court held the supplier liable for foreseeable loss of ordinary profits, but not for the exceptional contracts of which they were unaware.

Facts

The plaintiffs, Victoria Laundry (Windsor) Ltd, were launderers and dyers. Wishing to expand their business and take advantage of profitable post-war trading conditions, they contracted to purchase a new, larger boiler from the defendants, Newman Industries Ltd, an engineering company. The agreement was for the boiler to be delivered on 5 June 1946. While the defendants’ subcontractors were dismantling the boiler for transit, it was damaged, and delivery was consequently delayed until 8 November 1946, a delay of twenty weeks. As a result of the late delivery, the plaintiffs were unable to take on a large number of new customers and, crucially, were unable to secure several highly lucrative dyeing contracts offered by the Ministry of Supply. The plaintiffs claimed damages for breach of contract, seeking to recover for both the loss of general business profits and the specific loss of the lucrative dyeing contracts.

Issues

The central legal issue was the correct measure of damages for breach of contract, specifically concerning the remoteness of the losses claimed. The Court of Appeal had to determine whether the plaintiffs were entitled to recover damages for:

1. The loss of ordinary profits that would have been earned from the expansion of their laundry business had the boiler been delivered on time.
2. The loss of profit from the specific, exceptionally lucrative dyeing contracts which they had to decline.

This required the court to interpret and apply the rule on remoteness established in Hadley v Baxendale.

Judgment

The judgment of the Court of Appeal was delivered by Asquith LJ. The court critically re-examined the principles of remoteness from Hadley v Baxendale and restated them in a series of six propositions. The core of this restatement was that a party could only recover for losses that were ‘reasonably foreseeable’ at the time the contract was made.

The Test of Remoteness

Asquith LJ synthesized the legal principle as follows:

It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed… This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognized as too harsh a rule. Hence, … the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach. What was at that time reasonably foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.

This knowledge was classified into two types: imputed knowledge (what a reasonable person is understood to know in the ‘ordinary course of things’) and actual knowledge (knowledge of special circumstances communicated to the defendant).

Application to the Facts

Applying this test, the court considered the defendants’ knowledge. The defendants knew the plaintiffs were launderers and dyers and that they required the boiler for immediate use in their business. As engineers, they would naturally appreciate that a boiler of that size was for the purpose of business expansion and that a delay in delivery would result in a loss of business profit. Therefore, the loss of ordinary profits from laundering and dyeing was a reasonably foreseeable consequence of the breach.

However, the claim for the loss of the exceptionally lucrative dyeing contracts failed. The court held that the defendants did not possess the requisite ‘actual knowledge’ of these specific contracts. As Asquith LJ stated:

In the present case, the defendants were not possessed of any ‘special knowledge’ of the dyeing contracts which the plaintiffs were negotiating with the Ministry of Supply… we agree with the learned judge that the plaintiffs’ loss of profits on these contracts was not a ‘serious possibility’ or ‘real danger’ which the defendants must be taken to have had in contemplation at the time of the contract… the defendants did not know of the plaintiffs’ intention to accept these contracts, nor that they were of a particularly lucrative nature.

Consequently, the court held that while the plaintiffs were entitled to damages for the general loss of profit, they could not recover for the loss of the specific and exceptionally profitable government contracts, as this loss was too remote without the defendants’ actual knowledge of them.

Implications

The decision in Victoria Laundry v Newman Industries is a landmark case in the law of contract. It significantly clarified and modernised the rule on remoteness of damage from Hadley v Baxendale by introducing the language of ‘reasonable foreseeability’. The case established that the crucial question is what the defendant, given their knowledge at the time of the contract, would have reasonably foreseen as a likely result of the breach. It provides a clear distinction between recovering for ordinary loss of profit (foreseeable from the nature of the business) and exceptional profits (which require actual knowledge of the special circumstances). This framework continues to be fundamental to the assessment of contractual damages in common law jurisdictions.

Verdict: The appeal was allowed. The trial judge’s order was varied and the case was remitted to an official referee to assess the damages on the basis indicated by the Court of Appeal, which allowed for a reasonable sum for general loss of profit but excluded losses flowing from the specific dyeing contracts.

Source: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd 12 Apr 1949 [1949] 2 KB 528, CA