Causation is an overarching area of law which restricts the amount of compensation in damages which may be recovered which arises from a legal wrong.
It’s one of several legal filters which ensures that a defendant guilty of a legal wrong only pays for the loss for which they are legally responsible.
A person is not responsible in law for all possible loss that follows from their acts, even if the breach of legal duty was wrongful.
The law of causation operates as the first step to filter out loss for which the defendant is not liable.
Causation is not so much about quantifying loss, but identifying types loss which must then later be quantified.
Below, we talk about causation in the context of damage caused by:
- Breach of contract
- The law of torts
The same principles of causation apply to each of them.
Basic Principles of Damages
The overriding principle in the law of damages is that a successful claimant – the party suing – is only entitled to recover damages for actual loss suffered as a result of an unlawful act or omission from the defendant.
Just because a person a committed an unlawful act does not mean that they are exposed to unlimited liability or even substantial damages.
In law, causation is the first of 3 areas of law which serve to reduce the sum of damages payable by a defendant to a claimant. They're generally applied in this order, whether it is expressly stated or not:
- causation
- remoteness of loss (the Rule in Hadley v Baxendale): the loss claimed is not too remote
- mitigation of loss: the claimant failed to mitigate its loss where it was reasonable to do so.
The law of damages does not compensate:
- being exposed to a risk of injury
- injury that might have been suffered, but wasn't and
- hypothetical damage which might have been suffered, but was not in fact suffered.
It’s the actual injury that’s compensated.
Causation defines the outer edges of the kinds or types of damage which are recoverable.
Then damage, which is too remote and those not mitigated are excluded.
What is Causation?
The person who is legally responsible for the loss caused by the defendant, in an unbroken chain of causation.
In the law of damages, there is a marked distinction between:
- causing damage in the colloquial sense, and
- assigning responsibility for damage in law.
At its core, causation takes into consideration factors such as:
- the legal duty breached
- the facts of the case:
- past facts, decided on the balance of probabilities
- future facts or events: assessed as a probability by the court
- breaks in the chain of causation: when further events happen, which prevent further damage accumulating requiring compensation to be paid by the defendant.
Decisions attributing financial liability from causation is highly fact sensitive. A small change in the facts and the background circumstances, can have a dramatic effect on the outcome of an assessment of damages: the amount the defendant is ordered to pay in compensation.
Attribution of Liability
Causation is a legal filter which serves to eliminate certain losses from the scope of a defendant's responsibility.
Causation operates in two ways to assign responsibility for damages and pay compensation recognised by law:
- Damage caused by the breach of duty in the first place
- chain of causation: the effect of intervening events severs further liability to cause damage, by breaking the chain of causation
It’s whether intervening events have come to pass where the loss first caused by the defendant has stopped the damage that the defendant should be responsible for.
On both counts, causation filters out loss that the defendant should not be responsible from a legal perspective.
It’s the difference between financial compensation payable where someone is:
- morally blameworthy
- legally responsible for the legal liability assumed by a wrongful act
Causation:
- negates the possibility that a person liable to someone must pay compensation for a type or kind of loss for which they should not be assigned responsibility in law.
- siphons out the amount of types loss and which were not caused by wrongful conduct.
Next:
- when causation does not exist, and then
- breaks in causation.
No Causation
The defendant is not liable for losses:
- inevitable loss: which would have been sustained whether not a contract was breached or the tort was committed. The loss would have happened in any event, and
- no causative link: brought about by causes which can't be attributable to the breach
- breaks in causation: some act or omission by the claimant, defendant or third party breaks the chain of causation.
There's no causation for the loss claimed. The defendant isn't required to compensate the claimant for it.
Here are the common types.
The Opportunity or Occasion of Loss
A breach of contract may be a precondition or create an opportunity to suffer loss.
But it may not be the cause of it in law.
It may be a precursor to:
- damage which is caused by the breach if the legal duty
- loss that would have happened in any event, or
- create the opportunity, occasion – ie the circumstances - for the innocent party sustain loss, which is not caused by the breach of contract.
It’s often known as causing creating “the occasion of the loss”: the circumstances where further loss is suffered by the innocent party, but is isn’t caused by the breach of contract.
When the loss is caused by the innocent party's own doing, the test for causation is not satisfied. The breach is the occasion of the loss, not the cause of it.
That's different to an act or omission causing liability to pay damages.
Example: Occasion of Loss
The defendant was a contractor in the business of supplying building equipment. The claimant contracted the defendant to supply equipment it needed to plaster walls on a building site.
The claimant requested a ladder be provided to perform the plastering on ceilings. The ladder was not supplied.
The claimant used a folded trestle, lent it against a wall and used it instead of waiting for the ladder. A claimant was injured when they fell off it.
The claimant sued and claimed that the failure to supply the ladder was a result of the breach of contract (it was), and caused the loss by failing to supply the ladder.
The breach of contract didn’t cause the accident. It was the builder’s choice to use the unsuitable equipment, the trestle.
The damage was occasioned by the breach of contract. It was not the cause of it.
The defendant caused himself the injury, not the claimant. The claimant made an informed decision to use the trestle, knew the risks and still did it. His decision was not connected to the failure of the supplier to deliver a ladder.
There was either:
- no causation in the first place or
- his decision to use the trestle broke the chain of causation.
Believing that any breach of contract causes all damage demonstrates the post hoc ergo propter hoc fallacy:
Since event Y followed event X, event Y must have been caused by event X.
One does not necessarily follow the other.
Causation v Reasonable Foreseeability
There is no causation, even if what happens afterwards could have been foreseen. That’s because reasonable foreseeability doesn’t come into it: that’s another legal concept altogether. Unlike [remoteness of loss], causation does not depend on what the parties knew or contemplated might happen as a result of a breach as at the date of the contract.
Rules of Causation
Inherent in causation is that a claimant has to show that, but for the breach, it would not have suffered the loss in whole or in part.
The but for test identifies the difference between the contractual performance required, and the contractual performance actually delivered. The but for test identifies the difference between the two.
Without proving causation, there’s no prospect of recovering substantial damages. The claimant will be left to recovering nominal damages: up to £100 for the loss arising from the breach of contract.
The basic rules of causation include:
- The breach of contract must be an effective or dominant cause of the damage which stemmed from the breach of the legal duty.
- It isn’t necessary to show that a breach was the sole cause of the damage, so long as it was an effective cause of the damage alleged.
- When two or more causes of damage are identified:
- the cause is sufficient provided that it is an effective cause of loss.
- there is no need to choose which cause is more effective
- there is no requirement to choose between them if both of contribute to the causation of loss to the claimant.
Scope of Legal Duty
Damage caused for legal purposes varies according to the nature of the defendant's wrong.
Whether or not loss has been caused for legal purposes will depend upon the rule by which responsibility is being attributed.
The legal duty could be fixed by a contract, or could be a civil wrong, ie a tort such as negligence.
In the classic statement, in Caparo Industries Plc v Dickman (1990), Lord Bridge said:
It is never sufficient to ask simply whether A owes B a [legal duty]. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B [from damage].
In South Australia Asset Management Corp v York Montague Ltd [1996] UKHL 10, Lord Hoffman said:
Before one can consider the principle on which one should calculate the damages to which a [claimant] is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation.
…
A [claimant] who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply [with the duty].
He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered.
If the losses are not within the scope of the defendant's legal duty, the defendant has not assumed responsibility for them.
Causation can’t be decided without the court knowing:
- what the legal duty is: contractual, tortious, criminal
- the scope of the legal duty
- how it has been breached, whether it's a breach of contract, tort or under statute.
Only then do the application of principles of causation make sense.
Example: Scope of legal Duty:
A decorator was working alone at a house. He went out to buy wallpaper.
He left the front door unlocked.
A thief came in while he was away, and stole property from the house.
For the purpose of attributing liability to:
- the thief, the loss was caused the theft. It was not caused by the door being left unlocked
- the decorator, the damage was caused by the failure to:
- exercise reasonable skill and care, which is a breach of contract, or
- take reasonable care to guard against thieves, that is, negligence
Each legal duty has a different type and scope, and give rise to kinds of damage:
- which overlap with one another, or
- may be distinct from one another: a kind of damage may arise from one form of legal duty, and not with another.
Example: Scope of Legal Duties and Causation
Different tests of causation apply in different causes of action.
That’s because the type of damage that causes of action protect against. It coincides with the legal duty.
- contract law: but for the defendant 's breach of contract, the loss claimed would not have been suffered, and the breach was an effective cause of the loss.
- in passing off: in the tort of passing off, a misrepresentation of the defendant caused the buying public to purchase from the defendant
- fiduciary duties: the burden is on the fiduciary to show that the profits made from a transaction entered into in breach of duty is not caused by the breach: see Murad v Al-Saraj [2005] EWCA Civ 959
- misuse of intellectual property: the damages or profits made by the defendant may fairly be attributed to the defendant's wrongful act. Where loss results from infringing and non-infringing conduct, the damage caused is apportioned
Causation in Contract law: Explained
Damages are used to compensate as a means to compensate failures of parties to perform the primary obligations of the contract to perform.
Damages in contract law is measured by references to the but for test.
Firstly, the loss is identified: it’s the difference between the claimant’s actual situation and the situation in which he would have been if the primary contractual obligation had been performed.
The contract is the source of primary legal obligations – the legal duties set out in it - upon each party. The parties are bound to do whatever it has promised will be done under the contract.
Breaches of primary obligations in contracts give rise to “substituted or secondary obligations” by party in breach. Those secondary obligations of the contract breaker arise by operation of law:
The contract, however, is just as much the source of secondary obligations as it is of primary obligations ... Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach ...
So damages are a substitute for performance of the contact: brought about by a breach of contract.
The legal right to damages is the contract breaker’s secondary obligation as a substitute for performance. Where damages are an inadequate remedy, an account of profits may awarded to the claimant.
The kinds of damages which might be awarded include:
- the loss of profit arising from lost sales
- Expenditure paid in the expectation of the contract being performed, that is wasted
- Expenses to recover from the breach of contract, to make alternative arrangements for performance of the contract
- Subcontracts breached by the claimant because the defendant did not perform the contract as required
Example: Negligence Investment and Causation
Chartered accountants were engaged audit the books of a company and produced statutory accounts and auditor’s report.
An investor began buying swathes of shares in the company, which was listed on the London Stock Exchange.
The accounts were inaccurate and misleading in a number of respects including overvaluing the shares.
When the irregularities were discovered, the share price plummeted.
The purpose of the auditor’s report was limited. It's purpose was to enable shareholders of the company to make informed decisions about the exercise of their rights under the constitution of the company.
The auditors did not owe any legal duty to the investors, or to investment decisions that shareholders might make in reliance on the auditor’s report.
The auditor’s report was produced for a specific reason. It was not produced for the purpose of informing others of the state of the company to invest in it. The investor was claiming loss for its reliance upon the accounts for a purpose for which they were not supplied and were not intended.
It was outside the legal duty of the auditors. The loss of the investors was not caused by the auditor’s report.
Breaks in the Chain of Causation
There must be a causal connection between the breach of the legal duty and the loss suffered. That’s the essence of causation.
A break in the chain of causation may either:
- prevents damage being caused in the first instance. This is different to damage being occasioned by the breach (see above)
- prevents the defendant being liable for further loss caused their breach.
The legal lingo is that it’s a novus actus interveniens (if you’re a Latin fan). It's a new intervening act.
The defendant bears the burden of proof to show that there was a break in the chain of causation, on the balance of probabilities.
Assessing a break in causation involves examination of the defendant's breach of contract and the claimant's subsequent knowledge (of the breach) and subsequent conduct.
For a claimant to break the chain of causation:
- The claimant’s acts or omission "must constitute an event of such impact that it obliterates the wrongdoing" of the defendant.
- The claimant must at least act unreasonably to break the chain.
The knowledge of the claimant of the breach ranks highly on assessing whether its conduct was unreasonable or not, because breaks in causation are so fact sensitive.
Reckless conduct is usually expected to break the chain of causation.
The more the claimant knows of any danger caused by the breach and sensible remedial measures, the greater the likelihood that the chain of causation will be broken in the face of unreasonable behaviour.
Defendants and Causation
A defendant which:
- inconsistently with a contractual duty to do something or not do something, or
- breaches a contract, events could be reasonably expected to take place,
is not likely to break the chain of causation.
Obviously, a defendant:
- has an interest to do what it can to reduce the damage flowing from (caused by) the loss. It reduces the loss for which it is liable
- might be able to remedy the breach before loss is sustained, or minimise or avoid further loss, or
- may reduce the quantification of direct loss and consequential loss by curing a breach or reducing the effect of the breach.
For so long as the defendant’s conduct is an effective cause of the damage suffered by the claimant, the chain of causation isn’t likely to break, subject to third parties’ conduct.
That’s because the claimant is entitled to recover damage flowing directly and naturally from the breach.
It’s when that stops that damage stops accruing
Example: Causation overtaken by Events
A company owned a heat exchanger. It's a serious piece of industrial equipment.
It had an operational lifetime of 20 years.
It broke down after about 20 months and was repaired.
The company did not check that the repairs had been done properly.
It exploded.
It was the unreasonable behaviour of the claimant not to check that the repairs had been performed properly that caused the loss, not the supplier of the heat exchanger.
The supplier of the heat exchanger was liable for the initial repairs and for the loss of profit.
The repairer was liable for damage caused by the explosion and for the further loss of production.
Third Parties
Whether damage is caused by a third party is recoverable by a claimant, depends on the scope of the legal duty.
For example, a contract may impose a legal obligation on a party to keep trespassers out of a property. If a trespasser then causes damage, the contract breaker is in the firing line for the damages caused by failing to discharge their contractual duty to keep out trespassers.
Likewise, if the legal duty renders responsibility for the deliberate acts of third persons, then causation is likely to be established.
When loss is caused by the act of such a third person, is must be caused by the breach of duty. In Weld-Blundell v Stephens [1920] AC 956, Lord Sumner said:
"In general, even though A is in fault, he is not responsible for injury to C which B, a stranger to him, deliberately chooses to do. Though A may have given the occasion for B's mischievous activity, B then becomes a new and independent cause."
Test for Breaks in Causation
Other than that set out above, there is no definite test for breaks in the chain of causation.
Courts refuse to define one.
That because courts are fundamentally aware of the infinite ways in which chains of causation may be broken.
It has been said on high authority what will break of the chain of causation:
... is so fact-sensitive to the facts of any case where the issue arises that it is almost impossible to generalise. If one must do so, I would say that it must be some unreasonable conduct, not necessarily unforeseeable..., a new cause coming in and disturbing the sequence of events..., not necessarily reckless..., which may result from an accumulation of events which in sum have the effect of removing the negligence sued on as a cause..., which accumulation of events may take place over time...
In the end, it comes down to the common sense and experience of the judge hearing the case after the application of the but for test.
Conclusion
Irrespective of the cause of action, causation of loss and breaks in the chain of causation are highly fact sensitive and highly law sensitive. The legal duty is defined the cause of action.
Before answering questions about causation, it is therefore first necessary to identify the scope of the relevant rule of law.
From a factual standpoint, making assumptions about facts and circumstances can lead to a different result, because the existence of facts may affect common sense conclusions.
If it could be wrapped up in short form, causation serves to avoid damage where there's any reasonable excuse to:
- not to grant damages in first instance, and
- not to find the defendant further liable for damage.