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2 Lloyd’s Rep. 457
Tags: Contracts, Breach, Remedies, Foreseeability, Damages
tl;dr:
Plaintiff chartered Defendant vessel to sell their sugar in Basra, with an option to continue to Jeddah (not exercised). However, unexpected delays in the delivery caused the sugar to fetch a much lower price than it otherwise would have.Case Summary
In the 1967 case C. Czarnikow, Ltd. v. Koufos, also known as The Heron II, the UK's House of Lords addressed the issue of determining when damages in a contract dispute are too remote. This case involved a shipowner who breached a contract by delaying the delivery of sugar to a seller, causing the seller to lose profit due to a drop in sugar prices. The shipowner was unaware of the seller's plans, but knew there was a sugar market at the destination.
The key question was whether the lost profit could be recovered as damages for the contract breach. The House of Lords held that it was not too remote and was indeed recoverable. They applied a "reasonable foreseeability" test with a higher probability threshold than what is used in tort law. They concluded that the shipowner should have realized the potential loss was a likely outcome from the contract breach, as it was a foreseeable event within the normal course of business and contemplated by both parties at the time of the contract.
This case is significant because it refined the test for determining when damages are too remote in contract law, separating it from the test used in tort law. It also highlighted the importance of considering the parties' knowledge and expectations during the assessment of whether a loss was foreseeable. The Heron II case is still cited today as an authoritative source on this topic.
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