Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350
Contract; remedies for breach; damages; immediate loss.
Facts: Czarnikow entered into a contract with Koufos, chartering Koufos' ship to carry a cargo of sugar from Constanza in Romania to Basrah in Iraq. This journey normally took about 20 days. However, because the ship made some unauthorised deviations from its route, the trip took 10 days longer than normal. During this additional 10 days, the price of sugar in Basrah dropped significantly, so that when Czarnikow's sugar arrived it was worth less than it would have been worth if delivered 10 days earlier. In view of the later delivery, Czarnikow brought an action for breach of contract against Koufos, claiming damages to compensate for the drop in the market price of sugar.
Issue: Was Czarnikow entitled to claim damages from Koufos to compensate for losses caused by the drop in the market price of sugar?
Decision: Damages could be claimed to compensate for the loss caused by the drop in price.
Reason: Following a breach of contract, damages can be claimed to compensate for direct (immediate) losses suffered by the plaintiff. Direct losses are those that are fairly and reasonably considered to arise naturally (according to the usual course of things) from the breach of contract itself. The court found that Koufos must "as a reasonable businessman have contemplated that [Czarnikow] would very likely suffer loss, and that it would be, or would be likely to be, a loss referable to market price fluctuations at Basrah." The loss was therefore foreseeable as a loss flowing in the usual course of events from the breach, and constituted direct (or immediate) loss for which Koufos was entitled to claim damages.
This was one of the principles laid down in Hadley v Baxendale (1854) 2 CLR 517 and is often referred to as the first principle or 'limb' of that case.