The Law of Contract Damages Second Edition Adam Kramer OXFORD AND PORTLAND, OREGON 2017 Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Bloomsbury Publishing Plc Kemp House 50 Bedford Square Chawley Park London Cumnor Hill WC1B 3DP Oxford OX2 9PH UK UK www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland , OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2017 © Adam Kramer 2017 Adam Kramer has asserted his right under the Copyright, Designs and Patents Act 1988 to be identifi ed as Author of this work. All rights reserved. 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All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/ , 1998 – 2017. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-1-50991-584-2 ePDF: 978-1-50991-585-9 ePub: 978-1-50991-586-6 Library of Congress Cataloging-in-Publication Data Names: Kramer, Adam (Barrister), author. Title: The law of contract damages / Adam Kramer. Description: Second edition. | Oxford ; Portland, Oregon : Hart Publishing, an imprint of Bloomsbury Publishing, 2017. | Includes bibliographical references and index. Identifi ers: LCCN 2017037288 (print) | LCCN 2017039281 (ebook) | ISBN 9781509915866 (Epub) | ISBN 9781509915842 (hardback : alk. paper) | ISBN 9781509915859 (ePDF) Subjects: LCSH: Breach of contract—England. | Damages—England. Classifi cation: LCC KD1602 (ebook) | LCC K877 .K73 2017 (print) | DDC 346.4202/2—dc23 LC record available at https://lccn.loc.gov/2017037288 Typeset by Compuscript Ltd, Shannon Printed and bound in Great Britain by CPI Group (UK) Ltd, Croydon CR0 4YY To fi nd out more about our authors and books visit www.hartpublishing.co.uk . Here you will fi nd extracts, author information, details of forthcoming events and the option to sign up for our newsletters. Foreword to the First Edition The law of contract is a system of rules for enforcing promises or, more usually, requiring the payment of compensation for breaking them, and for shifting the risk of future or unknown events. In England the judges have developed this branch of the law over several centuries in a multitude of precedents which have worked out the ramifi cations of its various principles in great detail. As a result, English contract law has a clarity and predictability which makes it the system of choice for countless commercial transactions, many of which have nothing to do with England. It is a national asset, the jewel in the crown of the common law. It is, however, neither perfect nor static. It is in the nature of judge-made law that it avoids what Jean- É tienne-Marie Portalis, the principal draftsman of the Code Napoleon, described as the ‘ the dangerous ambition of wanting to regulate every- thing and foresee everything. ’ It adapts to changes in the practices of trade and com- merce. And it is subject to constant reconsideration and refi nement by generations of judges with a view to removing obscurities and inconsistencies. This process is essential because it is a reproach to any system of commercial law if lawyers have to tell their clients that although the facts are clear, it is anyone ’ s guess how a judge will apply the law to them. In making these adaptations and improvements to the law of contract, English judges have a long tradition, going back to Lord Mansfi eld, of drawing upon the work of systematic writers on the law. In the 18th and 19th centuries these tended to be continental writers, as the homegrown practitioner ’ s text book was anything but systematic, rather resembling a miscellaneous collection of precedents such as would today be thrown up by a computer search. But since the middle of the last century there has been a growing recognition in appellate courts of the value of writings by academics or members of the profession who have had the opportunity to consider the principles of the law as a whole rather than merely the fragment under consid- eration in a particular case. The ability to stand back and analyse principles is a necessary corrective to two tendencies to which the common law system of judge-made law tends to be prone. The fi rst is what in modern management-speak would be called a silo mentality, that is, a failure to see the connections between one branch (or twig) of the law and another. A system of precedent encourages lawyers to look for resemblances between their case and some earlier reported decision, but sometimes those resemblances, like Fluellen ’ s comparison of Henry V with Alexander the Great ( ‘ There is a river in Macedon; and there is also moreover a river at Monmouth and there is salmons in both ’ ) are not the most relevant for the purpose in hand. Analysis is necessary to show that cases which were previously thought in some relevant respect to be differ- ent, actually exemplify applications of the same principle. Lord Atkin ’ s analysis of the law of negligence in Donoghue v Stevenson is a celebrated example. vi Foreword to the First Edition A second source of confusion in the law is the opposite, namely, a tendency to want to explain all cases as manifestations of a single principle when in fact there is more than one in play. Adam Smith, in his Theory of Moral Sentiments , noted ‘ a propensity, which is natural to all men, but which philosophers in particular are apt to cultivate with a peculiar fondness, as the great means of displaying their ingenu- ity, the propensity to account for all appearances from as few principles as possible.’ The same is true of lawyers; not perhaps to display ingenuity but from a misguided belief that life should be simpler than it is. For example, it caused general astonish- ment and admiration when Lord Diplock pointed out in Hong Kong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd [1962] 2 QB 26 that the concepts of condi- tions and warranties were inadequate for determining in every case whether a breach of contract entitled the other party to rescind. Many terms — probably most — are ‘ innominate ’ . A breach of such a term may or may not give rise to a right of rescis- sion, depending upon how serious it is. How did judges manage before Lord Diplock pointed this out ? They did what judges usually do when the law requires them to apply a rule based upon an inadequate analysis of the issues: they cheated. If the breach was suffi ciently serious, they declared the term to have been a condition and if not, they said it had been a warranty. Of course that made it diffi cult to explain why much the same term should be a condition in one case and a warranty in another. The actual grounds for such decisions, as opposed to the formal grounds, were opaque. But until the Hong Kong Fir case, the full explanation had to be sup- pressed. As Lord Diplock acidly remarked in Ilkiw v Samuels [1963] 1 WLR 991, 1004, ‘ the law is nearly always most obscure in those fi elds in which judges say that the principle is plain, but the diffi culty lies in its application to particular facts. ’ The law of damages, a substantial and important part of the law contract, con- tains examples of both defi ciencies of analysis: the fragmentation of single prin- ciples and the reductionism which tries to make do with one principle when more are required. If I may mention an example in which I was personally involved, the majority decision of the House of Lords in the Achilleas [2009] 1 AC 61 was an attempt to release judges from the diffi culties of having to decide whether losses resulting from a breach of contract were too remote by means of the single criterion of whether they were foreseeable at the time of the contract. These diffi culties had been foreseen by Lord Penzance in Gee v Lancashire and Yorkshire Rlwy Co (1860) 6 H & N 211, 221, only six years after Hadley v Baxendale (1854) 9 Exch 341. The efforts of judges to decide every case on the sole basis of foreseeability has resulted in either fi ne linguistic distinctions about degrees of foreseeability (as in The Heron II [1969] 1 AC 350) or the kind of opaque reasoning which makes the distinction between foreseeable and unforeseeable damage seem entirely arbitrary. I mention this case because it was an article by Adam Kramer, the author of this book, which contributed to the adoption of a new approach by the House of Lords in the Achilleas .