A Critical Economic and Comparative Analysis of the Doctrine of Remoteness of Damage in Contract and Its Functional Equivalents

Cristian Paziuc

Abstract


Hadley v Baxendale remoteness is generally regarded favourably in the law and economics literature. Orthodox theory views remoteness as an efficient rule, although its purported efficiency virtues vary. Most economic models portray remoteness as an information disclosure device which bridges information asymmetry and regulates rates of contracting, precautions against breach and even reliance by promisees. Yet the assumptions of economic models are denied by the content that courts attribute to the doctrine. This paper suggests that remoteness is an inefficient rule which entails certain costs, particularly through its impact on performance/breach decisions, but only uncertain and modest efficiency gains. It is argued that a more efficient default rule would allow full recovery of expectation damages. The paradigmchanging judgment in The Achilleas could pave the way for such superior rule rather than add an imprecise test of remoteness to the existing Hadley rule. The paper contrasts the English and US solutions with functional equivalents of remoteness from Germany, France and Quebec, which come closer than the common law to the economic models’ version of remoteness or the expectation damages rule. The analysis shows, perhaps surprisingly, that the efficiency of the common law of contract is too often taken for granted.

 

NB: full text available here: http://discovery.ucl.ac.uk/1493220/


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