Hadley v Baxendale (1854: UK)

Hadley operated a flour mill in England. Due to a broken machine part, all operations at the mill stopped until essential repair works could be carried out to the crankshaft. Baxendale, a courier, was hired to transport the item to the repairer, yet was not made aware of the time sensitive nature of the delivery. Due to Baxendale's neglect, the item was delivered late which resulted in additional delays for Hadley's mill operations. Hadley sued Baxendale for the loss of profits caused by this delay.

ISSUE: Although both parties agreed that there had been a breach of the contract, Baxendale denied being responsible for Hadley's loss of profits since he hadn't been made aware that the machine part was holding up all operations at the mill

HELD: Court agreed with Baxendale, finding that the loss of profits was too remote

Rule in this case: An aggrieved party can claim compensation for losses that: (a) flow in the ordinary course of things - meaning, losses to be expected from the contract breach. If not, then (b) he can only claim compensation for losses that were reasonably foreseeable to both parties at contract formation

Here: Hadley could sue for losses to be expected such as the loss of one flour mill being out of operation due to the machine part... but, unless Baxendale had been made aware that the entire mill was at a stand-still, he could not have 'reasonably foreseen' the loss of profits that Hadley ultimately incurred since these were too remote

Why are the cases of Hadley v Baxendale and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd so important to contract law? Give a brief explanation of either case to explain your answer.