from doing y, a promise made by B to a third party to do y is not otherwise invalid (though it may be ineffectual in exceptional cases). The position adopted by such systems seems to be justified on the basis that, from C’s point of view, if B does not appear to lack contractual capacity to do y, the promise to do y should be held valid even though inconsistent with the prior promise to do x. As remarked earlier, however, such a policy of third party protection does not apply in the case of transactions tainted by vitium reale (that is, theft), which suggests a degree of inconsistency.

6.  Damages

The law of damages is a vast subject about which whole treatises have been written. Fortunately, the majority of the issues contained in such works are not of present concern. The principal matter which the remedy of damages raises for the current discussion is whether the general policies concerning the law of contractual damages adopted by jurisdictions can be said to show a high regard for promises, including through adequate substitutionary redress in cases of breach of promise.

The concern in the present section of the text is with default damages, that is to say, with the damages that will be awarded by a court in an action for breach of contract in the absence of any express provision concerning the assessment of damages which the parties may have provided for in their contract (such express damages clauses are discussed separately below). In codified systems, it is (as one would expect) the Code which specifies how such damages are to be assessed; in uncodified systems, the courts have developed various rules to assist in the assessment process. As will be seen from the discussion below, in no system is the view taken in the modern law that such default damages rules rest upon a presumed or tacit promise by the defaulting party to pay damages according to a certain measure. Such reasoning, while it may have been adopted in the past,121 now has an air of extreme artificiality about it, given that it is quite evident that, in those cases where no express damages clause was adopted by parties, parties simply failed to consider (or perhaps even chose to ignore) the question. The farthest that legal systems presently get towards having regard to the intention or will of the parties, when framing default rules as to damages, is in referring, as they often do, to what the parties

121See for instance the remark of Bovill CJ in British Columbia etc. Sawmill Co. Ltd v. Nettleship (1868) LR 3 CP 499, 505, that the defendant was liable for those damages ‘to which he assented expressly or impliedly by entering the contract’.

might reasonably be supposed to have contemplated as the likely losses which would flow from an act of non-performance of the contract.122 Because such foreseeable loss can, in appropriate cases,123 be measured according to the cost of cure of imperfect performance, it is evident that legal systems consider it to be consistent with the nature of a promise that the promisee may seek performance by an alternative party or the costs of itself effecting a cure if the promisor defaults, even if strictly the promisor only promised its own performance rather than that of another party in cases of default.124

The origins of the tradition of tying default damages to foreseeable losses appears to lie in a discussion of an old Roman text on recoverable damage in Molinaeus’s Tractatus de eo quod interest.125 This discussion of foreseeability was generalised by Pothier, in his statement that ‘the person who owes a performance is only liable for the damages that one could have foreseen at the time of the contract that the party owed a performance would suffer’.126 Pothier’s view was explicitly borrowed by the court in the seminal case of Hadley v. Baxendale,127 which enshrined the foreseeability approach in English law. Though foreseeability was, in the formulation penned by Alderson B in Hadley, equated with the more causal notion of loss ‘arising naturally, i.e. according to the usual course of things’,128 in the long run the accepted view has become that the formulation proposed two types of recoverable damage: (i) any damage reasonably contemplated as a matter of fact by both parties (this encompassing unusual types of damage), and (ii) any damage of a type ordinarily caused by the type of breach in question (and thus of a type foresight of which might reasonably be imputed to the parties). Reasonable foreseeability thus became the touchstone, though it would be assumed by courts in the case of ordinary types of loss.129

This common idea of ‘foreseeability of loss’ does not go so far as to posit that parties intended a specific quantum of damages to be recoverable,

122See Gordley, ‘The Foreseeability Limitation on Liability in Contract Law’.

123In those cases where cure is practicable, and is intended by the promisee.

124An issue which arose in the English case Ruxley Electronics v. Forsyth [1996] AC 344, discussed below at p. 379.

125Molinaeus, Tractatus de eo quod interest, §60.

126Pothier, Treatise on Obligations, §160.

127(1854) 9 Exch 341. 128 Ibid., per Alderson B at 354.

129In Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd (1949) 2 KB 528, Asquith J stated (at 539) that knowledge was either imputed or actual, the knowledge of the reasonable person being imputed to the contract breaker. Knowledge of special, unusual facts would require to be demonstrated as a matter of fact.

but, insofar as it posits that the parties might reasonably be supposed to have foreseen a certain quantum and type of loss as likely and did nothing to restrict or exclude the recoverability of such loss, it does at least attempt to provide a justification for awarding such foreseeable loss which has some connection with the minds (if not the actual intentions) of the parties. It is noteworthy that the Hadley v. Baxendale formulation requires likely losses to have been contemplated by both parties before they may be recoverable (albeit that such contemplation is assumed for losses of an ordinary type). There must thus be some sort of ‘agreement’, as least in that the parties’ contemplations of likely loss must ‘agree’ in a loose sense, before the losses are recoverable: a unilateral conception by one party that it is likely to suffer a particular type of loss in the event of breach which is not shared by, or communicated to, the other party is not enough to make the loss foreseeable.130 Nonetheless, there is evidently something of a leap to be made from conceiving of a loss as likely to imagining that this somehow demonstrates an intention of the defaulting party to pay for it. Realistically, any such conceptual leap is too great: foreseeability of loss as a basis for imposing liability for damages cannot sensibly be said to rest upon an intention or a promise by the defaulting party to pay for the loss it has caused. Rather, the use of foreseeability must be seen as functioning both as a judicial policy that a party ought to pay for some losses, as well as a recognition that there must be some sort of limitation placed upon the extent of the liability for such losses.

A foreseeability test as such a break on damages has of course the potential drawback that, if A and B foresee very onerous and, some might argue, disproportionate losses as arising in the event of breach of contract by A, simply by that act of foresight A will have incurred liability for such losses.131 Such limitations on the usefulness of foreseeability to arrive at arguably ‘fair’ results have been judicially commented upon: as one English judge has recently remarked ‘the concept of reasonable foreseeability is not a complete guide to the circumstances in which damages are recoverable as a matter of law’.132 Such concerns have led to attempts

130Ibid. For a Scottish example of the application of the rule that both parties must contemplate the likely losses, see Balfour Beatty Construction (Scotland) Ltd v. Scottish Power plc

1994 SC (HL) 20.

131An oft-used example is the taxi driver who knows that delivering his client late to his destination may result in heavy business losses: see Peel, ‘Remoteness Revisited’, p. 10; Hoffmann, ‘The Achilleas: Custom and Practice or Foreseeability?’, p. 59.

132Sir Anthony Evans in Mulvenna v. Royal Bank of Scotland plc [2003] EWCA Civ 1112, para. 33.

to marginalise foreseeability as the proper test for remoteness of damages in recent English cases,133 without a clear alternative test yet emerging. Lord Hoffmann’s attempt to postulate an alternative test of ‘assumption of responsibility’134 is unlikely to help, as such a test has the tendency to act as one of vague application and uncertain content under which to hide a general equitable allocation of risks.135 It is, moreover, prima facie unsuited to the many problematic cases where it is unclear precisely whether or not a party’s behaviour indicates its acceptance of bearing the consequences of a risk materialising.

The fact that the availability of default damages in breach of contract cases derives from legal rules and not from the promises (express or tacit) of the parties does not mean, however, that the remedy of damages has no relationship with the promisee’s interest in performance. As a substitutionary remedy for a promised but unfulfilled performance, damages are intended to protect the interest that the innocent party has in that performance by putting it, as far as possible, in that position which can be equated in pecuniary terms with the position in which it would have been had performance occurred. To the extent then that damages reflect such performance interest, they are referable to the promise made by the other party to perform. Though it has become fashionable of late among so-called rights theorists to argue that contractual damages are not a substitutionary remedy to compensate a claimant for the loss resulting from non-conforming performance, but rather constitute compensation for infringement of, or loss of, a right to performance,136 such an alternative view does not reflect decisions of the courts emphasising that it is not the value of the right lost but the pecuniary and non-pecuniary losses caused

133Transfield Shipping Inc. v. Mercator Shipping Inc. (‘The Achilleas’) [2009] 1 AC 61; Supershield Ltd v. Siemens Building Technologies FE Ltd [2010] EWCA Civ 7.

134See Lord Hoffmann’s speech in The Achilleas [2009] 1 AC 61. Considerations of market expectations, such as those that operated in The Achilleas, may well however be a rele­ vant factor in determining the proper result in some cases.

135See O’Sullivan, ‘Damages for Lost Profits for Late Redelivery’, p. 36. See also critical remarks in McGregor, McGregor on Damages, para. 6–171.

136The rights theorist Robert Stevens has argued that the standard award of damages in both tort and breach of contract is not compensatory, but rather provides a substitute for the infringement of the right in question. On this view, the value of the award is thus not measured according to the harm done to person, property, or other patrimony, but by relation to the value of the infringement of the right. This theory’s fundamental problem is that it assumes that rights have an objective value capable of determination, whereas (as discussed in Ch. 2) the view of modern economics is that value is a subjective quality. For Stevens’ views, see ‘Damages and the Right to Performance: A Golden Victory or Not?’; also, generally, Stevens, Torts and Rights.