Balfour Beatty Construction (Scotland) Ltd v. Scottish Power plc

The appeal concerned remoteness of damage in breach of contract and the application of the rule in Hadley v. Baxendale to losses claimed by a contractor for demolition and reconstruction of a partly completed concrete aqueduct after an electricity supply failure. The House of Lords affirmed that remoteness in contract is governed by the Hadley principle — loss must either arise naturally in the ordinary course of things or be within the reasonable contemplation of the parties. The court accepted the Lord Ordinary's factual findings that the electricity supplier had not been informed of the necessity for a continuous pour, and therefore could not reasonably have contemplated that a temporary interruption would probably lead to demolition and complete reconstruction. The Second Division was held to have erred in imputing technical knowledge of concrete construction to the supplier. As a result the claimed demolition and reconstruction costs were too remote and not recoverable.

The dispute arose after Balfour Beatty, engaged in constructing an aqueduct as part of a road scheme, installed a temporary concrete batching plant and entered a contract for a temporary electricity supply. A power failure due to ruptured fuses interrupted a continuous concrete pour. Because the poured concrete hardened during the interruption and the contract required the aqueduct to be watertight, Balfour Beatty demolished the work and rebuilt the stage, incurring substantial costs. Balfour Beatty sued the supplier for those costs.

The issues framed were whether the demolition and reconstruction costs were damages recoverable for breach of contract, and whether such loss was within the reasonable contemplation of the supplier at the time of contracting (application of Hadley v. Baxendale and subsequent authorities).

Procedural posture: after a proof before answer the Lord Ordinary (Lord Clyde) found breach of contract but held the claimed single head of loss had not been proved and granted decree of absolvitor. The Second Division (Inner House) recalled that interlocutor and awarded decree for the agreed sum. The supplier appealed to the House of Lords.

The House of Lords analysed the factual findings of the Lord Ordinary and the law on remoteness. Applying the Hadley test as explained in later authorities (including Czarnikow), their Lordships held that it is a question of fact what was within the supplier's reasonable contemplation. The Lord Ordinary had found the supplier had not been told of the need for a continuous pour, nor given reason to know that interruption would probably condemn the whole pour to demolition and reconstruction. The House of Lords concluded the Second Division had been wrong to impute technical knowledge of the contractor's operations to the supplier. Because demolition and reconstruction were not shown to have been a reasonably foreseeable probable consequence, the loss was too remote and not recoverable. The House of Lords therefore allowed the supplier's appeal and restored the Lord Ordinary's interlocutor; issues of expenses were adjusted in favour of the successful appellant.

Appeal allowed. The House of Lords held that the Second Division erred in finding the supplier should have reasonably contemplated demolition and reconstruction; the Lord Ordinary's factual finding that the supplier had not been informed of the need for a continuous pour meant the demolition/reconstruction costs were too remote to be recoverable under Hadley v. Baxendale. The interlocutor of the Second Division was recalled and that of the Lord Ordinary restored; costs awarded to the successful appellants.

Proof before answer in the Court of Session: Lord Ordinary (Lord Clyde) found breach but that the single head of loss had not been proved and granted decree of absolvitor (see 1992 S.L.T. 811). The Second Division (Inner House) recalled the Lord Ordinary's interlocutor and granted decree for the agreed sum (reported at [1993] S.C. 350). The supplier appealed to the House of Lords which allowed the appeal ([1994] UKHL 11) and restored the Lord Ordinary's interlocutor.