Privy Council finds loss of profits under separate contract not too remote to be recoverable

On an appeal from the Court of Appeal of the British Virgin Islands, the Privy Council has considered the damages that should have been awarded to a contractor as a result of the BVI Government’s breach of contract in failing to provide a prepared project site to enable the contractor to install a water reclamation treatment plant: Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UKPC 18.

The Privy Council held that the contractor was entitled to claim damages for the loss of profits it would have earned under a separate 12 year contract to operate the plant on behalf of the Government. The breach had resulted in the plant not being built, and therefore the contractor being unable to earn profits in operating the plant. That type of loss was not too remote to be recoverable, as it was within the reasonable contemplation of the parties when they entered into the construction contract. It fell within the second limb of the classic Hadley v Baxendale test for recoverability of damages in contract, based on special circumstances known to the parties, rather than losses arising naturally from the breach.

As well as illustrating that, in some circumstances, a loss of profits under one contract may be recoverable for breach of another contract, the decision is of interest as a relatively rare example of a higher court considering the principles of remoteness of damage in contract. Continue reading

Court of Appeal considers limits of recoverable loss in contract

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 [2013] 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

Court of Appeal overturns finding that customer’s investment loss was too remote

The Court of Appeal has overturned a first instance judgment that a customer’s loss on his investment was too remote to be recoverable. It said the judge had been wrong to conclude that, although the bank had negligently advised the customer to invest in an AIG enhanced variable rate fund (EVRF), his loss was not caused by the bank’s negligence but by the “unthinkable” market turmoil in September 2008, and was therefore unforeseeable and hence too remote to be recoverable. The Court of Appeal found that the loss was caused by the collapse in the value of the assets held within the unsuitable investment (i.e. the EVRF) and that loss was not only foreseeable but had also been foreseen: Rubenstein v HSBC Bank Plc [2012] EWCA Civ 1184

Damien Byrne Hill, Ralph Sellar and Harry Edwards outline the Court of Appeal’s reasoning below. Continue reading

The limit of contractual damages addressed by the Commercial Court

The recent case of Sylvia Shipping Co Limited v Progress Bulk Carriers Limited [2010] EWHC 542 (Comm) provided the High Court with an opportunity to consider the law on damages and, in particular, whether the law on remoteness had been altered by the House of Lords judgment in Transfield Shipping Inc v Mercartor Shipping Inc (The Achilleas) [2008] UKHL 48 (see post). The judgment of Mr Justice Hamblen in Sylvia Shipping suggests that the courts will approach Transfield as a case that does not alter the law on remoteness, other than in rare and unusual circumstances. Continue reading