Damages are the monetary compensation given to a party who has been wronged. Before contract damages can be awarded, there must be a breach. Once a breach is established, the traditional rule of damages attempts to restore the wronged party into the position in which he would have been had no breach occurred. United States law has a well-established rule that, for breach of contract, the defendant is liable only for consequences which, at the time the contract was made, could have been considered as reasonably foreseeable if the contract were broken1.

This paper will use the concept of “consequential damages” in a broader meaning than has usually been used in maritime arbitrations. By “consequential damages”, U.S. maritime arbitrators usually mean damages which are too remote to be awarded. In this paper, this phrase will be used to include all unusual damages which are seldom discussed at International Congresses because they cannot easily be categorized and because there is no consensus as to how they should be treated2. We will use this phrase to describe all damages which result more or less directly from a breach of contract but which are potentially too remote to be awarded, yet which can be found to be recoverable when the Panel applies the test of foreseeability.

In discussing “consequential damages”, this paper will show that there has been a gradual liberalization as to the recovery of such damages. In so doing, it will examine the practical applications, in recent New York arbitrations, of two doctrines which have evolved to limit the damages which can be awarded: the doctrine of foreseeability and the doctrine of avoidable consequences, more colloquially known as the “duty to mitigate” loss by the wronged party. This paper will concern itself only with cases of total breach due to non-performance of a contract and with cases of partial breach where performance took place, but after a delay.

Although numerous U.S. court decisions have dealt with foreseeability and remoteness of damage3, they all use as their principal point of reference (as do maritime arbitrations) the 1854 English case of Hadley v. Baxendale 4. In that case, the court, in an effort to limit the amount of the damages which juries could award, enunciated its famous rule5: