Even where a claimant proves breach and shows that the loss would not have occurred but for the negligence, the loss is only recoverable if it is not too remote a consequence of the wrong. Remoteness asks whether the type of damage is one the law will lay at the defendant's door. In PI work the question surfaces constantly, because a single missed deadline or negligent report can trigger a cascade of downstream financial effects, only some of which the professional will answer for.
The leading authority is Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No 1)) [1961] AC 388. The Privy Council held that a defendant in tort is liable only for damage of a kind that was reasonably foreseeable at the time of the breach. Direct causation is not enough; the type of harm must be within the scope of foreseeable consequences.
Foreseeability is calibrated at the level of the type of harm, not the precise mechanism or the exact quantum. In Hughes v Lord Advocate [1963] AC 837 the House of Lords held that where burn injury was foreseeable, the defendant was liable even though the specific manner of injury (a paraffin lamp exploding after being dropped into an open manhole) was not. The type must be foreseeable; the extent need not be. In PI, a negligent professional is liable for financial losses of a kind a reasonable practitioner would have foreseen, but need not have foreseen the precise commercial route by which they materialised.
Where the retainer is contractual, remoteness is governed by the two limbs of Hadley v Baxendale (1854) 9 Exch 341, as restated in Jackson v Royal Bank of Scotland [2005] UKHL 3. Recoverable losses are those:
The contract test is generally narrower than the tort test, because it turns on what was in the parties' contemplation when the retainer was formed, not what was foreseeable at the moment of breach. Where a claim is pleaded in both, the tighter test tends to control.
Remoteness is not the only control on recoverable loss. Since South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191, the courts have separately asked whether a given head of loss falls within the scope of the duty the professional undertook. The Supreme Court restated the framework in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20, setting out a six-question analysis in which remoteness sits alongside, but is distinct from, the scope-of-duty question. A loss can be foreseeable and yet fall outside the scope of the duty because the professional was engaged to protect against a narrower risk. Each doctrine can defeat a claim independently.
Suppose a solicitor is retained to complete a share transfer by a fixed deadline and misses it, with the result that the share issue falls through. The immediate loss is the failed transaction. Some months later the client is refused business finance by a lender that had priced the facility on the assumption that the share issue would complete, and a further, larger loss follows when a project cannot proceed.
Under Wagon Mound, financial loss flowing from a missed share-transfer deadline is foreseeable in type, and under Hughes the precise mechanism need not have been foreseeable in detail. On the tort remoteness test the second loss may well be recoverable. But the Manchester Building Society analysis then asks whether protecting the client against downstream financing decisions was within the scope of the retainer. If the solicitor was engaged to complete a share transfer, not to underwrite the client's wider financing strategy, the second head of loss may fall outside the scope of duty even though it is not too remote. The claim would fail on scope-of-duty grounds despite passing the remoteness gate.
Remoteness and scope of duty together shape what an insurer will indemnify. Retainer letters that clearly define the engagement, contemporaneous file notes recording what the client asked the professional to protect against, and careful pleading of the loss headings all matter. The doctrines are relevant across the PI market, including insurers of solicitors, accountants and surveyors, because they determine which parts of a headline claim value are properly on cover.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.