Contractual Remoteness and Psychiatric Injury in the High Court

The origin of the modern doctrine of remoteness of damage in the law of contract is Alderson B’s famous dictum in Hadley v Baxendale (‘Hadley’). That dictum stipulates that, absent ‘special circumstances’, loss resulting from a breach of contract is recoverable only when it arose ‘according to the usual course of things’, or could ‘reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it’. Persistent questions nevertheless remain regarding the precise content of the Hadley rule, and its most plausible justification, particularly following the House of Lords’ decision in Transfield Shipping Inc v Mercator Shipping Inc (‘The Achilleas’). A majority of that Court arguably there endorsed the proposition that, rather than being an externally imposed default rule, the contractual remoteness rule gives effect to an ‘assumption of responsibility’ derivable from the parties’ contract.