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Law of Contract ( ) - Case Study Example

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In Koufos v Czarnikow Ltd, The Heron II ("the Heron II")1 the respondents chartered the Heron II, a vessel owned by the appellant carrier. The Heron II deviated its course in breach of contract and reached Basrah - its destination - nine days later than it would otherwise have done…
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Law of Contract ( )

Download file to see previous pages... ess was examined in the Heron II. This casenote explains the judgments in the Heron II, paying particular attention to the division of opinion among the Law Lords in relations to the degree of probability required in the test of remoteness.
The second limb of Hadley requires the court to consider the degree of probability necessary to attract liability. Indeed, the degree of probability was considered in the Heron II and it was on this point (i.e., the degree of likelihood of an event which had to be contemplated by the parties at the time of contract) that the Law Lords' opinion differ.8
Lord Reid argued that although the shipowner was not aware that the charterer wanted to sell the sugar promptly on arrival, he knew that there was a sugar market at Basrah. Thus, if he had thought about the matter, he must have realised that it was not unlikely that the charterer wanted to sell the sugar. ...
He must have also known that in an ordinary market the price of sugar fluctuates daily, meaning that if the cargo arrived late, it would affect the price which the charterer could obtain for his goods. Therefore, the question for decision was whether a plaintiff could obtain damages for loss of a kind, which the defendant ought to have known was not unlikely to result from a breach of contract.9 To answer this question, Lord Reid went through the reasoning of Alderson B's in Hadley. He interpreted Alderson B's judgment to draw a distinction between results of a breach which were likely because they would happen in the great majority of cases, and results which were unlikely because they would only happen in a small minority of cases. A defendant would be liable in the former case since the result should reasonably be regarded as having been in the contemplation of the parties.10 Applying Alderson B's distinction, he decided that a party in breach was liable for any loss arising from a result which was contemplated as "not unlikely".11

Applying the first limb of Hadley, Lord Morris considered if the loss suffered by the charterers could reasonably be said to arise naturally from the appellant's breach. He found that although the appellant did not know of the charterers' precise plan, the appellant had instruction "to proceed at all convenient speed to its destination".12 Hence, at the very least, the appellant should have contemplated that if the vessel was late, the charterers might suffer some financial loss.13 In other words, the appellant need not know that a loss to the charterers was certain or inevitable to be liable. He need only know of a possibility of loss.14

Lord Hodson also probed into the meaning of ...Download file to see next pagesRead More
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