Causation And Remoteness Mitigation Notes

Stuart v Condor Commercial Insulation Pty Limited [2006] NSWCA 334

Relevant Facts: Stuart (S) was a construction company who contracted with the Commonwealth to replace insulation in a number of residential Sydney properties under the SANIP. The appellant then sub-contracted this work to the respondents (C) with each property subject to a separate agreement. SANIP cancelled its contract with S after a fire broke out in one of the properties due to C’s negligence (in not boxing the down lights). S brought proceedings against C, claiming damages for the loss of profits that followed its termination of contract with SANIP and consequent inability to secure contracts for future houses under the program.

Issue: What is the approach to remoteness under the second limb of the test in Hadley v Baxendale

Decision: Under the second limb the following matters require determination:

1) Whether it could be said that the loss was within the reasonable contemplation of the parties which in part relates to;

2) whether the respondent was aware of the special circumstances such as to enable a court to conclude that it would have been in the reasonable contemplation of both parties

Ratio (Beazley JA):

• His honour began by reciting the test in Hadley v Baxendale. He then resolved of authorities for some propositions:

  • The crucial question is whether, on the information available to the defendant when the contract is made, the reasonable man in his position would have realised that loss of that kind would have been within his contemplation – C Czarnikow Ltd v Koufous [1969]

  • It may also be relevant that the event causing damage was “not unlikely” (R & H Hall Ltd v WH Pim (Junior) & Co Ltd [1982] All ER) – cited by Lord Morris in Czarnikow, Lord Hodson preferred “serious possibility or real danger”

• He concluded that it was unnecessary for the parties to have contemplated the precise loss/damage or the way it came about but it was necessary for the parties to contemplate both the type of damage suffered and the manner in which it occurred.

• Specifically in cases of subcontracting his honour cited Seven Seas Properties Ltd v Al-Essa [1993] WLR where a party on-sold a property they were to buy for profit, both contracts needing to be completed in the same day. The vendors refused.

  • In such cases the defaulting party (defendant vendors) was liable for damages (under the second limb) which the defaulting party was on notice might be occasioned by breach so that it may be held they accepted such a risk

  • It was required the defendant be on notice at the date of the contract of the risk it is contended they accepted

• He considered Oxley v Brambles where the appellants were responsible for unloading equipment. The court found that while their obligation was to do so without damaging Bramble’s property or injure their employee’s it was too remote to contend that their breach would cause Brambles to suffer loss as a result of a claim by an employee (it was unpredictable)

Conclusion on remoteness – above

Was the loss in the reasonable contemplation of the parties (Ratio):

• The loss of fire was recoverable under either limb in Hadley – the general nature of the loss (damage to property) would have been within their reasonable contemplation

• However the loss contended for (loss of contract with SANIP) would not have been within the parties’ reasonable contemplation:

  • While the respondent new of the contract with SANIP (it did not know its terms) – this is sufficient for a presumption that they undertook the risk which needs to be rebutted (Robophone). It can by:

  • First, The supervision of the works was the responsibility of the appellant – the respondent only undertook that Mr Kirkness, as their product manager, was required to ensure the work was properly done

  • Secondly, the appellant remained responsible for its works under the contract with SANIP. The loss is not one arising directly from the appellant and respondent – it relates to a contract between SANIP and the appellant, breach of which was caused by the relationship between the appellant and respondent

    • As such where the appellant remained responsible for all work carried out by sub-contractors, it would not have been in the reasonable contemplation of the respondent that poor workmanship on its part would result in loss of the appellant’s entire contract with SANIP and even under the appellant’s contemplation.

  • Furthermore the contracts were for individual houses – where the job involved a contract price of $10,000, the contract price was so out of proportion to the risk of being liable for damages for loss of the entire contract with SANIP

Was the event that caused the loss one that was ‘not unlikely to occur’?

• An examination of the respondent’s witnesses show that neither had an understand that a fire was “not unlikely” to occur but they both new that it was bad building practice to place insulation of down-lights – the usual risk (according to Kirkness) was that the down light would fail because of overheating and even if the insulation ignited it would self-extinguish itself not spread flame

• The respondent contended hence that it was an unusual catastrophic event and hence something “not unlikely to occur” – no other conclusion could be reached on the evidence. The basis of application in Hadley v Baxendale is hence not made out.

Ipp JA also commented that Stuart was responsible for the workmanship of anyone they chose to sub-contract and if it complied with this obligation it would have ensured that the down-lights were boxed. Also relevant was that the representative of Stuart also failed to detect the presencde of down-lights and this was a cause of breach of contract with SANIP. He said that it would not have been within C’s contemplation that not only it would breach but S would also breach its contract. The trial judge’s finding that all agreed it would ignite was errorneous – not...