Remedies - Causation, certainty, and foreseeability

Learning Outcomes

After reading this article, you will be able to explain and apply the MBE rules on causation, certainty, and foreseeability in contract remedies. You will know how to determine whether a loss is recoverable, distinguish between direct and consequential damages, and identify when damages are too remote or speculative to be awarded. You will also be able to answer MBE-style questions on these topics with confidence.

MBE Syllabus

For MBE, you are required to understand the principles governing the recovery of damages for breach of contract, including the limits on recoverable losses. This article covers:

• The requirement of factual causation (“but for” test) in contract damages.
• The rule of certainty: damages must be proven with reasonable certainty, not speculation.
• The rule of foreseeability: only losses that were foreseeable at contract formation are recoverable.
• The distinction between direct (general) and consequential (special) damages.
• The effect of remoteness and mitigation on recoverable damages.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is NOT a requirement for a plaintiff to recover damages for breach of contract?
   1. The loss was caused by the breach.
   2. The loss was foreseeable at the time of contracting.
   3. The loss can be proved with reasonable certainty.
   4. The loss was mitigated by the defendant.
2. Under the rule of foreseeability, a breaching party is liable for:
   1. All losses actually suffered by the non-breaching party.
   2. Only losses that were contemplated by both parties at contract formation.
   3. Losses that were a natural result of the breach or specifically communicated as a possible result.
   4. Only losses that are covered by insurance.
3. If a plaintiff cannot prove the amount of damages with reasonable certainty, the court will:
   1. Award nominal damages only.
   2. Estimate the damages liberally in the plaintiff’s favor.
   3. Award punitive damages.
   4. Automatically grant specific performance.

Introduction

When a contract is breached, the non-breaching party may claim damages. However, not every loss is recoverable. The law imposes three key limits: causation, certainty, and foreseeability. These doctrines ensure that damages are awarded only for losses that are actually caused by the breach, can be proven with reasonable accuracy, and were within the contemplation of the parties when they made the contract.

Key Term: Causation (in contract) The requirement that the loss claimed must have been factually caused by the breach—i.e., the loss would not have occurred but for the breach.

Key Term: Certainty The principle that damages must be proved with reasonable certainty; speculative or hypothetical losses are not recoverable.

Key Term: Foreseeability The rule that damages are limited to losses that were foreseeable to the breaching party at the time the contract was made.

Causation: The "But For" Test

The first requirement for recovering damages is factual causation. The plaintiff must show that the breach was a substantial factor in causing the loss. If the loss would have occurred even if the contract had been performed, damages are not recoverable.

Certainty: No Recovery for Speculation

Damages must be established with reasonable certainty. The plaintiff must provide evidence that allows the court to determine the amount of loss with a fair degree of accuracy. If the amount is too uncertain or speculative—such as lost profits from a new, unproven business—damages may be denied or limited to nominal damages.

Foreseeability: The Hadley Rule

Damages are limited to losses that were foreseeable at the time of contracting. This includes:

• Losses that arise naturally from the breach (“general” or “direct” damages).
• Losses that result from special circumstances, only if those circumstances were communicated to and contemplated by the breaching party (“consequential” or “special” damages).

Losses that are unusual, remote, or not within the reasonable contemplation of the parties at contract formation are not recoverable.

Key Term: Direct Damages Losses that flow naturally and directly from the breach itself.

Key Term: Consequential Damages Losses that result from special circumstances beyond the ordinary course of events, recoverable only if foreseeable to the breaching party.

Remoteness and Mitigation

Damages that are too remote—i.e., not a probable result of the breach—are not recoverable. The non-breaching party must also take reasonable steps to mitigate (reduce) their losses. Failure to mitigate may reduce or bar recovery for avoidable losses.

Worked Example 1.1

A supplier fails to deliver custom parts to a manufacturer, breaching their contract. As a result, the manufacturer loses a lucrative contract with a third party. The supplier was not told about the third-party contract.

Answer: The manufacturer cannot recover for the lost third-party contract. This is a consequential loss that was not foreseeable to the supplier at contract formation, since the supplier was not informed of the special circumstances.

Worked Example 1.2

A new restaurant opens and contracts with a chef, who breaches the contract before the restaurant opens. The restaurant sues for lost profits.

Answer: The restaurant will have difficulty recovering lost profits because, as a new business, it cannot prove the amount of loss with reasonable certainty. The court may award only nominal damages or proven out-of-pocket expenses.

Exam Warning

On the MBE, be alert for questions where the plaintiff claims unusual or large losses. Always ask: Was the loss foreseeable at contract formation? Can the amount be proved with reasonable certainty? If not, damages may be denied as too remote or speculative.

Revision Tip

When answering MBE questions on contract damages, always check: (1) Was the loss factually caused by the breach? (2) Can the loss be proved with reasonable certainty? (3) Was the loss foreseeable at the time of contracting?

Key Point Checklist

This article has covered the following key knowledge points:

• Damages for breach of contract require causation, certainty, and foreseeability.
• Causation: The breach must be a substantial factor in causing the loss.
• Certainty: Damages must be proved with reasonable accuracy; speculative losses are not recoverable.
• Foreseeability: Only losses foreseeable at contract formation are recoverable.
• Direct damages are always recoverable; consequential damages require special notice.
• Damages that are too remote or not mitigated may be denied or reduced.

Key Terms and Concepts

• Causation (in contract)
• Certainty
• Foreseeability
• Direct Damages
• Consequential Damages