Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc

Contractual damages are recoverable only where the type of loss arose naturally in the ordinary course of events or was reasonably contemplated as a probable consequence when the contract was made. The relevant event must have appeared to the defendant to carry a very substantial degree of probability.

A contracting party's presumed knowledge of another party's business depends on the circumstances. A supplier of a commodity is not presumed, merely from the order, to understand complex construction or manufacturing techniques in which it will be used. Without information about a process requiring uninterrupted supply and the destructive consequences of interruption, extensive demolition and reconstruction costs may be too remote.

Balfour Beatty used electrically powered plant to produce concrete for construction of an aqueduct. The aqueduct required a continuous pour. When fuses in the electricity supply ruptured, the pour stopped and the existing work hardened. Balfour Beatty reasonably demolished and reconstructed the work, claiming the resulting cost from Scottish Power's predecessor.

The Lord Ordinary held that the electricity supplier had breached the supply contract but that the claimed loss was too remote, and granted decree of absolvitor: 1992 S.L.T. 811. The Second Division unanimously reversed that decision and awarded £229,102.53 with interest: [1993] S.C. 350. The central issue before the House was whether demolition and reconstruction were within the supplier's reasonable contemplation when the contract was made.

1. Appeal allowed unanimously. Lord Jauncey of Tullichettle delivered the leading speech. Lord Keith of Kinkel, Lord Bridge of Harwich, Lord Browne-Wilkinson and Lord Nolan agreed with his reasoning and proposed orders.

2. Per Lord Jauncey, the governing remoteness rule derived from Hadley v Baxendale (1854) 9 Exch 341, as elucidated in Czarnikow Ltd v Koufos [1969] 1 AC 350. The recoverable loss must be of a type reasonably contemplated when the contract was made. The event producing it must have appeared to the defendant to possess a very substantial degree of probability.

3. The Lord Ordinary had found that the supplier was not told about the need for an uninterrupted concrete pour. Nor did it know that a construction joint would be unacceptable or that interruption would require demolition. General knowledge that poured concrete eventually hardens did not establish knowledge of the relevant hardening time, the consequences of adding fresh concrete to hardened concrete, or the need to construct a watertight aqueduct.

4. Per Lord Jauncey, the Second Division had wrongly imputed technical knowledge which the supplier neither possessed nor had been given. Contracting parties may be taken to understand ordinary business practices only so far as the circumstances justify that inference. A commodity supplier is not presumed, merely from the order, to know every detail of the purchaser's complex construction or manufacturing techniques or the consequences of supply failure.

5. Whether a consequence was within reasonable contemplation is ultimately a question of fact. No evidence justified a finding that demolition and reconstruction would have appeared to the supplier to possess the required degree of probability. The claimed cost was therefore too remote.

6. The House found it unnecessary to decide whether total demolition differed only in degree from lesser remedial work, or whether Parsons (H) (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791 correctly stated the law on that issue.

7. The interlocutor of the Second Division was recalled and the Lord Ordinary's decree of absolvitor restored. The appellants received their expenses in the Court of Session and their costs in the House of Lords.

1. House of Lords: The appeal was allowed unanimously. The interlocutor of the Second Division was recalled and the Lord Ordinary's decree of absolvitor was restored: [1994] UKHL 11.

2. Second Division of the Court of Session: The reclaiming motion was allowed unanimously. The Lord Ordinary's interlocutor was recalled and decree was granted for £229,102.53 with interest: [1993] S.C. 350.

3. Outer House of the Court of Session: Lord Clyde held that the electricity supplier was in breach of contract but that the claimed loss was not recoverable. He granted decree of absolvitor: 1992 S.L.T. 811.