It is well established that before a court will make an award of damages in relation to a breach of contract, it must be satisfied that the type of loss being claimed was considered a potential risk when the parties entered the contract. The courts are careful not to impose liability for losses that are simply too remote, not being within the reasonable contemplation of parties at the time of entering into the contract.
The issue of the remoteness of damages was considered in the recent case of Donoghue v Greater Glasgow Health Board.
In this case, the Health Board was being sued by an employee who had slipped on concrete steps due to loose stones from a gravel path being on the steps. The path and stairs were her normal route for deliveries in the course of her work and she used this route around 20 times per day.
Three years earlier, the University had contracted with a company to build and operate a multi storey car park for the Glasgow Royal Infirmary. The contractor had subcontracted some of the works to Laing O'Rourke Scotland Limited ("LORSL") who were responsible for constructing the gravel path in question. LORSL had granted the Health Board a warranty, agreeing to comply with the building subcontract. In terms of the subcontract, it was alleged that LORSL were obliged to construct the path using asphalt as opposed to gravel and that by failing to use asphalt, they had breached their contract.
When the Health Board were sued by Ms Donoghue, they sought to rely, in turn, on their warranty and pass on any losses to LORSL. In order to recover their losses from LORSL, the Health Board needed to convince the court that their losses were caused by the use of gravel rather than asphalt and that they could have been reasonably contemplated as likely to occur when LORSL signed the warranty.
In its defence to the action, LORSL argued that the court did not have enough evidence before it to decide whether the accident was caused by their breach of contract and, furthermore, that the Health Board's claim was too remote from any breach of contract to justify recovery. In reaching its conclusion, the court relied on an earlier decision on remoteness of damages in the House of Lords case Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas).
In that case, the House of Lords held that damages should follow from the intention of the parties on the basis that parties took on liabilities under contracts on a voluntary basis. It was wrong to hold someone liable for risks that parties entering a contract in a particular market would not have considered they had undertaken. When entering into contracts, parties' views on responsibilities and risks taken on determined other contract terms, including the price. A party asked to assume a large, unpredictable risk would want some payment in return. If the law made a party liable for a risk which that party thought was excluded, this would give the other party something for nothing.
Following on from that judgement, the court held that the loss the Health Board was claiming could not be categorised as a loss that was likely to arise from the alleged breach of contract or that would have been reasonably contemplated by the parties when they entered the contract. The Health Board had not pointed to any special knowledge on the part of LORSL which would bring this within their contemplation.
This case is interesting in the court's resistance to extending liability for breaches of contract and also as another example of a party being pursued under a collateral warranty. Where there is a particular risk to users of a building, in order to make a party liable for this, it would assist to give the fullest information available to allow the party to have "special knowledge", allowing the remoteness test to be overcome although it will, of course, still be necessary to first establish that the breach was the cause of the loss.