The Court of Appeal has considered the correct approach to determining when a type of loss caused by a breach of contract should nonetheless be regarded as too remote to be recovered by the innocent party, introducing a potential important link to implied terms: John Grimes Partnership Ltd v Gubbins  EWCA Civ 37.
The key message for contracting parties is that, as with most issues, it will often be sensible to deal with this issue expressly in the contract. If not dealt with expressly, then in most cases a contract breaker will be held liable for the types of loss which, at the time of the contract, could reasonably have been foreseen as not unlikely to result from a breach. This is the classic test for remoteness of damage, though in the present case the Court of Appeal analysed this as an implied term of the contract.
If a party wishes to argue that it has not assumed responsibility for a type of loss that was reasonably foreseeable, it will generally need to adduce evidence of special circumstances, such as a general understanding or expectation in the relevant market, which render the assumption of responsibility inappropriate in the particular case.
The courts are unlikely to be swayed by an argument that the scale of loss is disproportionate to the contract price (in this case potentially £400,000 compared to approximately £20,000 paid under the contract). As the Court of Appeal commented, “It may not infrequently be the case that the breach of a contract of modest size gives rise to a substantial claim in damages.” Gary Milner-Moore and Darren Kidd comment on the decision below. Continue reading