Introduction
Jackson v. Royal Bank of Scotland was an English contract law case that addressed remoteness of damage. James Jackson and his (by the time, deceased) partner Barrie Stewart Davies were doing business under the name of “Samson Lancastrian.” Jackson and Davies were importing dog chews from Thailand and selling them to Economy Bags (further referred to as EB). The plaintiffs used the services of the Royal Bank of Scotland (the Bank) (defendant) that acted as an intermediary between Samson Lancastrian and EB. Namely, the Bank was issuing transferrable letters of credit to EB in which Samson was stated as beneficiary each time EB made an order for Thai dog chews. The Bank made a mistake by sending EB a document that divulged Jackson’s markup from each transaction. Even though EB was aware that Jackson had financial gains from transactions, it was the first time the company found about the actual percentage. EB was no longer willing to continue the relationship with Samson Lancastrian, cut the middle man, and proceeded to order dog chews directly from Thailand.
Jackson filed a lawsuit against the Bank, blaming it for the termination of the relationship with EB and accusing it of breach of contract. The plaintiff sought damages for the irreversible loss of the business opportunity that prevented him and his partner from making future profits with EB. Initially, the trial court ruled in favor of the plaintiff who was awarded damages. It was concluded that if it were not for the Bank’s mistake, Jackson could have benefitted from the business relationship with EB for at least the next four years. However, the Bank did not agree with the court ruling and appealed. The court of appeal affirmed the previous decision but confined damages to only one year. The Bank took the matter to the House of Lords.
Issues
The present case concerns issues such as the foreseeability of damages and remoteness of damages. The law of damages and compensation employs the principle of causation and remoteness. According to the former, losses must occur as a result of a breach of contract, otherwise, damages are not recoverable. The latter principle defines a limiting point beyond which damages attributable to a breach of contract are no longer recoverable. The two rulings by the trial court and the court of appeal provided different assessments. Initially, Jackson was awarded damages for the next four years of a business relationship that was rendered impossible due to the Bank’s mistake. However, after the Bank’s first appeal, the damages were limited to one year. Hence, the issue for this case may be formulated as follows:
- Could the Bank foresee damages flowing from its breach of contract?
- Are the losses suffered by the plaintiff to remote to be recoverable?
- If they are not too remote, how could one assess the quantum of damages?
Held
The House of Lord held that the loss of future business relations could not be considered too remote. Jackson was entitled to keeping his business information confidential which he entrusted the Bank with. The question was as to what could be done to put the plaintiff in the position as if there had been no breach of contract. Lord Walker noted that to address the issues of the present case, one would first have to characterize a breach of contract. He added that the said characterization is contingent on factors such as the terms of the contract, its business context, and the reasonable contemplation of the parties.
Reasons for the Decision
The House of Lords ruled that Jackson was entitled to four years of damages as a natural consequence of the breach of contract by the Bank. The court decided that the quantum of damages was dependent on what should have been in the reasonable contemplation of the parties regarding the timeline of their trading relationship. Lord Walker reason that quantifying damages required a judicial discretion of assessing the longevity of the trading relationship. He explained that it was highly likely that as time was passing by, EB would want to decrease Jackson’s profit margins. All facts considered, Lord Walker ruled that four years of damages was a fair assessment. Lord Hope provided his rationale based on the details of the contract between Jackson and EB. He argued that the parties did not specify what damages were payable in the contract. Since Hadley rules were satisfied and the losses were not too remote, Lord Hope did not find that any limit could be set to the quantum recovered.
My Comment
Jackson v. Royal Bank of Scotland is an exemplary case demonstrating how the court can apply the test of foreseeability set out in Hadley v Baxendale. The Bank held the knowledge of what needed to happen in the ordinary course of things, which included guarding its client’s privacy and not sharing the correspondence with third parties. The loss flowing from the breach of contract is not only possible, but it is not unlikely. For this reason, Jackson was in his right to seek damages from the Bank.
Reference
Jackson and another (Original Appellants and Cross-respondents) v. Royal Bank of Scotland (Original Respondents and Cross-appellants), UKHL 3 (2005).