Common law — common mistakes

When analysing a problem question, always apply both limbs of the Hadley v Baxendale test. State whether the loss falls under the first limb (imputed knowledge) or if it requires the second limb (actual knowledge of special facts).

No, this is a common misconception. The purpose of contractual damages is purely compensatory. They are designed to compensate the innocent party for their loss, not to punish the party in breach. Punitive (or exemplary) damages are exceptionally rare in contract law.

Not necessarily. The duty is to take 'reasonable' steps. What is reasonable depends on the claimant's circumstances, including their financial position. A claimant is not expected to embark on complex and expensive litigation or take significant financial risks to mitigate their loss. The burden is on the defendant to prove the claimant acted unreasonably.

They can only claim for lost profit if it is not too remote. If the lost profit is a normal, foreseeable consequence of the breach, it would be recoverable under the first limb of Hadley v Baxendale. However, if the profit was from an unusually lucrative contract, it would only be recoverable under the second limb if the supplier knew about this special circumstance when the original contract was made (as per Victoria Laundry v Newman).

Generally, no. You must choose between claiming expectation loss (which includes lost profits) and reliance loss (wasted expenses). Claiming both would lead to double recovery. For example, you cannot claim for the profit you would have made on a product AND the cost of the materials to make it. The expectation loss calculation (revenue minus costs) already accounts for the expenses. You would typically claim reliance loss only when your expected profit is too speculative to prove.