Victoria Laundry’s Dirty Linen
For almost a century, the courts, relying on Hadley v. Baxendale, restricted recovery for consequential damages to those damages to which the promisor had tacitly agreed. That changed abruptly in 1949 with Lord Justice Cyril Asquith’s opinion in Victoria Laundry v. Newman. After that decision, the second limb of Hadley was liberalized; the defendant would be liable for those losses if it had reason to know of the plaintiff’s possible loss—if the loss was “on the cards.”
The law prior to Victoria Laundry was summarized in the eleventh edition of Mayne’s Treatise on Damages:
Is mere knowledge or communication sufficient to impose liability? Can the fact of such consequences being known or communicated to the other party be sufficient, unless he was expressly or by implication told that he would be held answerable for them, and consented to undertake such a liability? In all probability, if the carrier, in Hadley v. Baxendale, had been told that any delay in delivering the shaft would make him liable to pay the whole profits of the mill, he would have required an additional reward before facing such a responsibility. Every one who breaks a contract must pay for the natural consequences of the breach, and in most cases the law defines those consequences. Can the other party, by acquainting him with further consequences which the law would not have implied, enlarge his responsibility to the full extent of those consequences, without a contract to that effect? It is usually in the power of the defendant to refuse such responsibility, but ought not the onus of making a contract rather to lie on the party who seeks to extend the liability of another, than upon him who merely seeks to restrain his own within its original limits?
In the twelfth edition the rule was “modernized”: “The incorporation of new material since the last edition in 1946 would . . . have required some basic reorganization, since the leading case on contract damages, Hadley v. Baxendale, has now been restated for modern conditions by the Court of Appeal in Victoria Laundry v. Newman.” To “modernize” the rule, Lord Justice Asquith had to make a number of dubious moves.
Victor P. Goldberg, Victoria Laundry’s Dirty Linen, 2 Criterion J. on Innovation 523 (2017).