Koufos v Czarnikow (Heron II) [1967] Facts: Koufos (plaintiff) chartered a container-shipping vessel owed by C. Czarnikow, Ltd. (Czarnikow) (defendant) to load a cargo of 3,000 tons of sugar for delivery to the Port of Basra and then promptly sold to merchants. The voyage took nine days longer than expected. By the time the vessel reached port the market price of sugar had dropped due to the arrival of another cargo of sugar. Although Czarnikow knew there was a sugar market in Basra it was not aware that Koufos intended to immediately sell the sugar upon the vessel’s arrival there. Koufos filed suit against Czarnikow for breach of contract and sought the difference between the market price and the price he received for the sugar as damages.
Issues: Was the loss too remote for the defendant to reasonably foresee?
Holding: The loss was NOT too remote for the defendant to reasonably foresee. The damages for breach of contract CAN be recovered if, at the time of agreement formation, the parties expect the damages to “arise naturally” from the breach.
Reasons: The court held that the test for remoteness in contract is narrower than it is in tort. While in tort any damage of a type which is reasonably foreseeable can be claimed, Lord Reid ruled that, in contract, the defendant must ought to have realized that the loss was 'not unlikely to result from the breach of contract'. A higher degree of probability is needed for the loss to be in the contemplation of the parties. Lord Reid disapproved of Asquith LJ’s judgment in Victoria Laundry v Newman [1949] in that the term “foreseeability” was employed. He emphasized that he would ‘use the words ‘not unlikely’ as denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable.
“The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realized that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”
Mitigation is a common law doctrine based on fairness and common sense; it is the principle that a party who has suffered loss (from a tort or breach of contract) has to take reasonable action to minimize the amount of the loss suffered.
