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Thursday, August 3, 2023

Teaching Assistants: Victor Goldberg on Victoria Laundry

Rethinking This is the tenth in our series of posts on Victor Goldberg's second volume of collected essays on contracts law, Rethinking the Law of Contract Damages (RLCD).  Links to previous posts on the first volume, Rethinking Contract Law and Contract Design (RCL), can be found here.  Today's post covers the eighth chapter of RLCD, in which Professor Goldberg reviews the English case, Victoria Laundry v. Newman Industries.  This is another take on the "tacit assumption" test for consequential damages, a topic that Professor Goldberg previously addressed in Chapter 8-10 of RCL, reviewed here.

The issue is the extent to which the breaching party must be aware of the possibility of consequential damages flowing from the breach in order to be made liable for them.  Between the decision in Hadley v. Baxandale (1854) and Victoria Laundry (1949), courts in the UK would assess consequential damages if the likelihood of such damages were a "tacit assumption" between the parties.  In Victoria Laundry, UK courts abandoned that test, but according to Professor Goldberg, it did so based on three errors

Lord Cyril Asquith, who wrote the opinion in Victoria Laundry believed that Hadley's true meaning had been obscured by a misleading headnote.  The headnote indicated that the defendant delivery service had been given notice that the mill was shut down due to the broken shaft.  Lord Asquith was of the view that the defendant knew only that the mill had requested a replacement shaft.  Professor Goldberg argues persuasively that the headnote was correct (RLCD, 166).

Hadley Mill
Site of Hadley v. Baxandale

Lord Asquith then makes a second error, according to Professor Goldberg, in thinking that the misleading headnote matters.  That is, if the facts were as the headnote suggests, the case should come out differently, according to Lord Asquith.  If the footnote is correct, the delivery service in Hadley knew that the shaft was urgently needed and that the mill was stopped.  But mere knowledge was not sufficient.  What is required is an understanding (a tacit assumption) that the breaching party will be responsible for damages consequential to breach (RLCD, 167)

According to Professor Goldberg, in order to arrive at an award of damages in Victoria Laundry, Lord Asquith had to make yet a third error, this time by misconstruing the facts.  Regardless of the version of the test, the availability of consequential damages turns on what the parties knew at the time of contracting.  In Victoria Laundry, the contract was formed on February 20th, but buyer gave no notice of the urgency of its need for the boiler at issue in the contract until April 26th.  Given the knowledge of the parties at the time the contract was formed, Lord Asquith should not have awarded any consequential damages (RLCD, 168-69).  But he awarded partial damages for consequential losses that were "on the cards" at the time he treated the contract as having been formed (RLCD, 165).

Despite its flaws, Victoria Laundry remains a celebrated decision to this day and is treated as faithful to Hadley.  In The Achilleas, Lord Hoffman and Lord Hope proposed a return to the focus on the intentions of the parties that had informed the "tacit assumption" approach. Professor Goldberg thinks that such an approach is more consistent with Hadley and so he is mystified by continued treatment of Victoria Laundry as authoritative.  

Below are links to previous posts on RLCD and the first post links to post posts on RCL:

Teaching Assistants: Victor Goldberg, Volume II, An Introduction
Teaching Assistants: Victor Goldberg on Valuation of the Contract as an Asset
Teaching Assistants: Victor Goldberg on The Golden Victory
Teaching Assistants: Victor Goldberg on Lost (Volume) in America
Teaching Assistants: Victor Goldberg on Lost Volume in the UK
Teaching Assistants: Victor Goldberg on Mitigation
Teaching Assistants: Victor Goldberg on the Middleman's Damages
Teaching Assistants: Victor Goldberg on Sub-Sales in the UK
Teaching Assistants: Victor Goldberg on Jacob and Youngs v. Kent

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