Jackson and another (Original Appellants and Cross-respondents) v. Royal Bank of Scotland (Original Respondents and Cross-appellants)

Contractual remoteness is assessed by reference to the parties’ reasonable contemplation when the contract was made. The two limbs of the rule in Hadley v Baxendale share that foundation and need not be treated as mutually exclusive.

Once loss of the relevant kind satisfies the remoteness test, the court cannot impose an arbitrary temporal cut-off based on what the contract-breaker contemplated. Unless the contract limits liability, the duration and amount of recoverable loss are questions of causation and quantification. Damages for lost future business may therefore extend while there remains a real and substantial, rather than speculative, chance that the business would have continued.

A bank issued a transferable letter of credit under which a trading partnership acted as first beneficiary and its Thai supplier as second beneficiary. The bank mistakenly sent the supplier’s invoice to the partnership’s principal customer. This disclosed the partnership’s substantial mark-up, causing the customer to terminate an established trading relationship and purchase directly from the supplier.

The trial judge held that the bank had breached its contractual duty of confidence and awarded US$124,500 for the lost opportunity to earn profits over four years. The Court of Appeal, [2000] EWCA Civ 203, upheld the finding that loss of repeat business was recoverable but limited damages to one year. The partnership appealed against that limitation, while the bank cross-appealed on remoteness and the allegedly speculative character of the loss.

The central questions were whether loss of repeat business was too remote and how the duration and value of that loss should be assessed.

1. The appeal was allowed and the bank’s cross-appeal dismissed unanimously. Lord Hope of Craighead delivered the leading speech. Lord Walker of Gestingthorpe added concurring observations, and the other Law Lords agreed with the reasons given by Lord Hope, Lord Walker, or both.

2. Per Lord Hope, the loss of repeat orders was not too remote. The bank’s contractual duty protected the confidentiality of the first beneficiary’s profit. The customer’s ability to discover the supplier’s prices independently neither reduced that duty nor made the resulting loss unforeseeable. Disclosure destroyed the existing stream of repeat business, and damages were required to place the claimants in the position they would have occupied without the breach.

3. The Court of Appeal had made two errors of principle. First, contractual remoteness is assessed when the contract is made, not when it is breached. That date matters because the parties can then allocate risk, disclose special circumstances and limit liability. Secondly, once the kind of loss satisfies either limb of Hadley v Baxendale, the court cannot impose an arbitrary temporal cut-off by asking how long the defendant contemplated the loss would continue. In the absence of a contractual limit, recoverability continues until proof of further loss becomes too speculative.

4. Per Lord Walker, the two limbs of Hadley v Baxendale are not mutually exclusive statutory formulas. Their common foundation is what the contract-breaker knew or must be taken to have known when contracting. The proper characterisation of the breach depends on the contractual terms, business context and the parties’ reasonable contemplation.

5. The trial judge was entitled to value the lost opportunity on a reducing basis over four years. A claimant seeking profits dependent on a third party’s future conduct must show a real and substantial chance, rather than a speculative possibility. Here the prospect of continued business diminished over time because the customer already knew the supplier’s identity and might eventually have eliminated or reduced the intermediary’s margin.

6. Although the trial judge had made errors concerning aspects of the evidence, a remittal would have caused disproportionate cost and delay and could not produce mathematical certainty. His four-year award remained as good an estimate as could be made. The House restored the principal damages award of US$124,500. The parties were left to agree interest and the exchange rate.

1. House of Lords: Allowed the claimants’ appeal, dismissed the bank’s cross-appeal and restored the trial judge’s principal damages award.

2. Court of Appeal: In [2000] EWCA Civ 203, upheld the conclusion that loss of repeat business was not too remote, but limited recoverable future loss to one year and reduced the interest rate.

3. Trial: HH Judge Kershaw QC found a contractual breach of confidence and awarded US$124,500 for the lost opportunity to earn profits over a reducing four-year period.