Damages in contract are intended to compensate an injured party for any financial loss sustained as a consequence of another party’s breach. The object is not to punish the party in breach, so the amount of damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in the same position they would have been in had the contract been properly performed.
The rule in Hadley v Baxendale (1845) states that damages will only be awarded in respect of losses which arise naturally, or which both parties may reasonably be supposed to have contemplated when the contract was made, as a probable result of its breach.
The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not. Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow (Victoria Laundry Ltd v Newham Industries Ltd (1949)).
Applying these rules to the scenario, it is evident that Bel has effected an anticipatory breach of her contract with Apt Ltd and will be liable to it for damages suffered as a consequence.
As for the extensive preliminary expenses, Bel would certainly be liable for them, as long as they were in the ordinary course of Apt Ltd’s business and were not excessive (Anglia Television v Reed (1972)).
As regards the profits from the contract to supply the book club, the issue would be as to whether this was normal profit or amounted to an unexpected gain, as it was not part of Apt Ltd’s normal market when the contract was signed. If Victoria Laundry Ltd v Newham Industries Ltd were to be applied, it is unlikely that Apt Ltd would be able to claim that loss of profit from Bel. However, it is equally plausible that the contract was an ordinary commercial one and that Bel would have to recompense Apt Ltd for any losses suffered from its failure to complete contractual performance.
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