8.3 Remedies, Causation and Remoteness
Key Takeaways
- Expectation damages aim to put the claimant in the position as if the contract had been performed (Robinson v Harman), subject to causation, the Hadley v Baxendale remoteness rule, and mitigation.
- Hadley v Baxendale is the name of the contractual remoteness rule: ordinary losses, plus special losses only if the circumstances were communicated at contracting.
- A clause is a penalty if it is a secondary obligation imposing a detriment out of all proportion to a legitimate interest in performance (Cavendish / ParkingEye).
- Specific performance and injunctions are discretionary when damages are inadequate; courts will not normally compel personal service.
- Guarantees are secondary promises that generally need writing under the Statute of Frauds 1677 s.4; indemnities are primary hold-harmless promises and sit outside that writing rule.
8.3 Remedies, Causation and Remoteness
Quick Answer: Compensatory damages put the claimant in the position as if the contract had been performed, but only for loss caused by the breach and not too remote under Hadley v Baxendale. Liquidated sums stand if they protect a legitimate interest and are not penal (Cavendish). Specific performance and injunctions are discretionary when damages are inadequate. Claimants must mitigate. Indemnities and guarantees are distinct risk-shifting promises.
The SRA FLK1 Contract heading lists damages; liquidated sums and penalties; specific performance; injunctions; duty to mitigate; indemnities; guarantees; and causation and remoteness. This independent OpenExamPrep section is the "what does the client actually get?" toolkit for a newly qualified solicitor.
Damages
The default measure is expectation (Robinson v Harman): the money difference between the promised performance and the breach position. Reliance expenditure (Anglia Television v Reed) is an alternative where expectation is hard to prove, but it cannot be used to escape a loss-making bargain (C & P Haulage v Middleton).
How to quantify on a file:
- Difference in value on a sale of goods (market price minus contract price, Sale of Goods Act 1979 ss.50–51 as a statutory outworking).
- Cost of cure for defective works, unless that cost is out of all proportion to the benefit. Ruxley Electronics v Forsyth awarded loss of amenity when a pool was slightly shallow and rebuilding was unreasonable.
- Loss of chance if the chance is real and evaluable (Chaplin v Hicks; Allied Maples requires a substantial chance that a third party would have acted).
- Date of assessment is usually the breach date, but later events can cut or crystallise loss (The Golden Victory; Bunge v Nidera).
- Non-pecuniary loss is generally not recovered for ordinary commercial breach (Addis v Gramophone). Exceptions exist where the object of the contract was pleasure, peace of mind, or freedom from distress (Jarvis v Swans Tours; Farley v Skinner).
An account of profits for breach remains exceptional (Attorney General v Blake). One Step (Support) v Morris-Garner treats negotiated damages as available for some invasions of a valuable right (for example, a restrictive covenant) rather than as a general substitute for unproved loss.
| Remedy | What it does | Typical SQE trigger |
|---|---|---|
| Expectation damages | Bargain position as if performed | Late or missing commercial supply |
| Reliance damages | Wasted expenditure, not a device to dump a bad bargain | Abortive production spend where profit is speculative |
| Liquidated sum | Agreed consequence of breach, if not a penalty | Delay damages in a construction contract |
| Specific performance | Equitable order to perform | Unique land; some unique goods or private-company shares |
| Prohibitory injunction | Stop a threatened or continuing breach | Negative covenant; trade secrets; some exclusive-service restraints |
Causation and remoteness: Hadley v Baxendale
Cause in fact is the but-for test, qualified by common-sense legal causation. An intervening act may break the chain if it is not the kind of thing the breach was liable to produce.
Remoteness in contract is still named for Hadley v Baxendale. The mill's lost profits from a late crankshaft were irrecoverable because, in the ordinary course, a carrier would not know the mill had no spare, and those special facts were not communicated at contracting.
| Limb | Test | FLK1 application |
|---|---|---|
| First limb | Loss arising naturally, in the usual course of things, from this type of breach | Ordinary extra cost of substitute goods; ordinary lost profit on a standard resale in a market the seller must be taken to know |
| Second limb | Loss that may reasonably be supposed to have been in the parties' contemplation as the probable result of a breach because of special circumstances communicated when they contracted | A lucrative sub-charter or factory shutdown told to the other party when the deal was made |
Victoria Laundry v Newman recovered ordinary dyeing profits but not a specially lucrative Ministry contract the seller did not know about. The Heron II sets the contract standard as a serious possibility or a loss that is not unlikely — tighter than reasonable foreseeability in tort. The Achilleas adds that, in some commercial settings (notably certain chain charters), a type of loss is remote if the defendant cannot be taken to have assumed responsibility for it. Start with Hadley; reach for assumption of responsibility only where market understanding is that a whole category of follow-on loss sits outside the bargain.
Scope-of-duty thinking from the negligent-advice cases (SAAMCO; Manchester Building Society v Grant Thornton; Meadows v Khan) can appear where the claim is really about the purpose of an adviser's retainer. Tie the recoverable loss to the risk the defendant was actually paid to guard against.
Liquidated sums and penalties
A liquidated damages clause that is a genuine, commercially justifiable pre-estimate of loss is typically enforceable as a debt. After Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67, the penalty rule is this: a secondary obligation that imposes a detriment out of all proportion to the innocent party's legitimate interest in performance is a penalty and unenforceable as such. Compensation is a legitimate interest; it is not the only one. ParkingEye's £85 charge protected a legitimate interest in efficient car-park management and was not extravagant. In Cavendish, withholding of consideration for goodwill was analysed as a primary price-adjustment obligation, so the penalty rule was not engaged.
Lord Dunedin's Dunlop Pneumatic Tyre v New Garage tests (disproportion to the greatest conceivable loss; the same sum for trivial and serious breaches) remain useful evidence for a straightforward damages clause. They are not a complete code. Consumer cases add CRA 2015 fairness. For SQE1, always ask: primary or secondary? What legitimate interest? Is the detriment extravagant?
If the clause is a penalty, it is not enforced as a stipulated sum. The innocent party still has a common-law claim for damages assessed in the ordinary way.
Specific performance and injunctions
Specific performance is an equitable order to perform. It is ordinary for unique land. It may be granted for unique goods or shares in a private company. It is refused where damages are adequate, where the contract is for personal service, where performance would need constant supervision of an ongoing business (Co-operative Insurance v Argyll Stores — no order to keep a supermarket trading), for want of mutuality, delay, or unclean hands.
Injunctions restrain a threatened or continuing breach. Prohibitory injunctions are more readily granted than mandatory ones. Interim relief still uses American Cyanamid (serious question to be tried, damages inadequate, balance of convenience) in ordinary private-law cases. A negative covenant can be enforced even where positive specific performance would be refused: Lumley v Wagner restrained singing elsewhere without forcing the singer to perform. The court will not grant an injunction that is specific performance of personal service by the back door.
Duty to mitigate
The claimant cannot recover loss that could have been avoided by reasonable steps (British Westinghouse). There is no duty to take risks, destroy a commercial reputation, or accept an unreasonable substitute. The defendant proves failure to mitigate. Costs of reasonable mitigation are themselves recoverable, even if they increase loss in the short run. Mitigation is about avoidable loss; it does not require the claimant to fund the defendant's breach. The White & Carter power to keep performing for the price is limited where there is no legitimate interest in doing so — that is the same policy seen from the other side of the file.
Indemnities and guarantees
An indemnity is a primary promise to hold the promisee harmless against defined loss, often expressed to be payable on demand. It can create a debt-like claim that is less entangled with remoteness if drafted as a hold-harmless for a specified liability. Construction of indemnities is still strict, especially if they purport to cover the indemnified party's own negligence (the Canada Steamship guidelines remain a cautious reading aid).
A guarantee is a secondary promise to answer for another's default. Statute of Frauds 1677 s.4 requires the agreement, or a memorandum or note of it, to be in writing and signed by the guarantor or an authorised agent. A signed email can satisfy those requirements where the message is intended as an authenticated record of the guarantee. Consideration need not appear in the writing (Mercantile Law Amendment Act 1856 s.3). A true indemnity is outside s.4. Labelling is not decisive: courts look at whether liability is independent or contingent on the principal's default. Actionstrength v International Glass Engineering cautions that an oral guarantee is generally unenforceable; estoppel rarely saves it.
Variation of the principal contract can discharge the guarantor (Holme v Brunskill) unless the guarantee preserves consent to variation. Distinguish a commercial demand guarantee or performance bond, often payable against documents, from true suretyship. Where a guarantee is taken from a consumer or a non-commercial spouse, stack this analysis on Etridge and CRA 2015 — the writing may be perfect and the security still voidable.
Putting a file together
Work in a fixed order on SQE1: identify the breach; confirm the contract is still available or properly terminated; prove causation; apply Hadley v Baxendale; cut avoidable loss; check any liquidated sum against Cavendish; ask whether damages are inadequate so that equity should intervene; and only then rely on an indemnity or guarantee as a separate covenant. That sequence matches how a competent newly qualified solicitor writes an advice note.
Official source: SRA SQE1 Assessment Specification, FLK1 Contract (from 1 September 2026), headings Remedies and Causation and remoteness; Misrepresentation Act 1967 s.2 for the statutory damages machinery that often sits beside these common-law claims.
A carrier is late delivering a mill shaft. The mill stops. The carrier was not told that the mill had no spare shaft. The mill claims all lost production profits. Which statement best applies Hadley v Baxendale?
A construction contract imposes £20,000 per week for delay. A genuine pre-estimate of the employer's likely loss is about £4,000 per week. The employer also wants the figure to operate as a deterrent with no link to any project interest. Which statement is most accurate after Cavendish?
A seller refuses to complete a contract for a unique freehold development plot. The buyer is ready and able to pay. Which remedy is the ordinary starting point?
A director sends a one-line email after goods have been delivered: 'I personally guarantee the company's account with you.' Later the director says the promise was an indemnity and that an email cannot count. Which statement is most accurate?