Stuart Pty Limited v Condor Commercial Insulation Pty Limited

Stuart Pty Limited (the appellant) appealed a decision concerning its claim for loss of profits against Condor Commercial Insulation Pty Limited (the respondent). The dispute arose from a subcontract for insulation work, which the appellant alleged the respondent breached, leading to the termination of the appellant's head contract with SANIP. The appellant sought to recover its lost profits from the head contract.

The primary legal issue before the court was whether the appellant's loss of profits on the head contract was recoverable from the respondent under the second limb of the rule in *Hadley v Baxendale*. This required the court to determine if the loss was within the reasonable contemplation of both parties at the time the subcontract was made, considering any special circumstances known to the respondent that would make such a loss a foreseeable consequence of a breach. The court also considered whether the specific event causing the loss, a fire due to faulty workmanship, was a type of event that the parties could reasonably have contemplated.

The court reasoned that for the loss to be within the reasonable contemplation of the parties under the second limb of *Hadley v Baxendale*, the respondent needed to have been aware of special circumstances that would render the loss of the head contract a foreseeable outcome of a breach. The court noted that while the parties contemplated that faulty workmanship could lead to rectification work or damage to property, the loss of the entire head contract was not necessarily within their reasonable contemplation unless specific knowledge of such a risk was communicated. The court found that the appellant had not established that the respondent was aware of circumstances that would make the loss of the SANIP contract a foreseeable consequence of the respondent's breach.

The appeal was dismissed, with the court ordering that the parties provide written submissions regarding costs.