Wertheim v. The Chicoutimi Pulp Company [1910] UKPC 1 (18 March 1910)

A pulp buyer received goods late but resold them for more than their market value on the delivery date. The Privy Council held that damages for late delivery should reflect the buyer's actual, mitigated loss, not a notional one based on market price differences.

Facts

The appellant, Wertheim, contracted to buy 3,000 tons of wood pulp from the respondent, Chicoutimi Pulp Company, for delivery between September and November 1900. The respondent breached the contract by failing to deliver on time, with the pulp only arriving between June and November 1901. The appellant accepted the late delivery. At the time delivery was due, the market price of the pulp at the port of arrival was 70s. per ton. By the time it was actually delivered, the market price had fallen to 42s. 6d. per ton. However, the appellant had managed to resell the pulp to sub-purchasers for 67s. 6d. per ton, a price significantly higher than the market value at the time of actual delivery.

Issues

The central legal issue was determining the correct measure of damages for breach of contract by late delivery. Specifically, the court had to decide:

1. Whether damages should be calculated as the difference between the market price at the contractually agreed time of delivery and the market price at the actual date of delivery, regardless of the appellant’s actual financial outcome.
2. Alternatively, whether the court must account for the advantageous sub-sale price obtained by the appellant, which mitigated the actual financial loss sustained.

Judgment

The judgment of the Board was delivered by Lord Atkinson. The Privy Council held that the correct measure of damages was the actual loss suffered by the appellant, which required taking the profitable sub-sale into account.

Reasoning of the Court

The Court began by affirming the foundational principle of contract damages, established in Robinson v. Harman, which is to place the innocent party in the same position, so far as money can do so, as if the contract had been performed. Lord Atkinson stated:

And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed… That is a ruling principle. It is a pertinent principle. You are not to be put in a better position than you would have been in if the contract had been performed.

While acknowledging the general rule for damages in late delivery is the difference in market price between the due date and the actual delivery date (in this case, 70s. minus 42s. 6d. = 27s. 6d. per ton), the Court stressed that this is a subordinate rule. It cannot be applied if it contravenes the ‘ruling principle’ of compensating only for actual loss. As the appellant resold the goods for 67s. 6d., a price much higher than the 42s. 6d. market price at delivery, his actual loss was not the full 27s. 6d. per ton. The seller was entitled to have this mitigation of loss taken into account.

The Court calculated the actual loss as the difference between what the appellant would have received had the contract been performed on time (the market price of 70s. per ton) and what he actually received from his sub-sale (67s. 6d. per ton). The damages were therefore assessed at 2s. 6d. per ton. To award the full 27s. 6d. per ton would be to allow the appellant to profit from the breach, putting him in a better position than if the contract had been performed.

Implications

This case is a landmark authority on the measure of damages in contract law. It firmly establishes that the ‘market rule’ for calculating damages is a prima facie measure that is subject to the overriding compensatory principle. A claimant cannot recover for a notional loss if their actual loss has been reduced or eliminated through their own actions, such as an advantageous sub-sale. The decision underscores the principle that damages are intended to be compensatory, not punitive, and prevents a claimant from securing a windfall from a defendant’s breach. It highlights the importance of assessing the claimant’s true financial position post-breach when quantifying damages.

Verdict: The appeal was dismissed, and the judgment of the Supreme Court was affirmed. The appellant was ordered to pay the costs of the appeal.

Source: Wertheim v. The Chicoutimi Pulp Company v [1910] UKPC 1 (18 March 1910)