Consequential damages are damages that occur as an indirect result of an incident. You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. To take full advantage of our website, we recommend that you click on “Accept All”. Our newsletter... We would like to use cookies that will enable us to analyse the use of our websites and to personalise the content for you. A Technology and Construction Court decision last week has considered a direct attack on the traditionally narrow interpretation given by the English courts to indirect and consequential loss exclusion clauses. Launch the website from your Home screen by tapping its icon. The traditional approach of English law has been that exclusions for “consequential” or “indirect “losses will usually exclude only those losses falling within the second category described above. The direct and natural result of the fire was the destruction of the goods and the warehouse, causing lost profits and business interruption losses to the claimants. Therefore, the claims in this case do not appear to fall within the scope of the exclusion.”. The result of consequential damages can include: 1. by Arch Fletcher. Any other damages which may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract. Consequential damages, otherwise known as special damages, are damages that can be proven to have occurred because of the failure of one party to meet a contractual obligation, a breach of contract. Approximately £40 million worth of stock owned by 2E was being held at Sony’s warehouse at the time of the fire, which was caused by civil disorder arising from the shooting of Mark Duggan in 2011. In summary: Case: Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm). Simply put, consequential damages typically are more significant when it comes to the amounts awarded. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. Personalisation cookies collect information about your website browsing habits and offer you a personalised user experience based on past visits, your location or browser settings. Damages that may fairly and reasonably be considered as arising naturally, i.e. 1. The court ruled that the clause excluded liability for indirect/consequential loss of profits, and not direct loss of profits: The most likely (and often the only) damage that Polypearl would suffer from E.on’s failure to meet the minimum spend commitment would be a loss of profits. The Contract guaranteed the vessel for 12 months against all defects due to defective materials, design error, construction miscalculation or poor workmanship (but not other causes such as perils of th… Tap the Share button at the bottom of the Safari screen for the website you're on, Tap the icon labelled 'Add to Home Screen', Tap the 'Add' button in the upper right corner. However, the rule is very well established and in, 2 Entertain Video Ltd v Sony DADC Europe Ltd, This case appears to be the first occasion on which a direct attempt to overcome the traditional approach has been made by reference to the recent judicial criticism of it (, Co-head of the Infrastructure, Construction and Energy Disputes Group | Joint Managing Director for Asia and the Middle East, Co-head of the Infrastructure, Construction and Energy Disputes Group, Scottish Power UK Plc v BP Exploration Operating Company Ltd, Transocean Drilling UK Ltd v Providence Resources Plc, 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd. In the case of the factory, therefore, such an exclusion would not affect any claim for ordinary loss of production suffered during the period the factory was unavailable. Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. the exclusion of liability for indirect or consequential losses, and the exclusion or limitation clause worded accordingly. They usually take a similar form to the following, which is from clause 17.6 of the FIDIC Red Book: “Neither Party shall be liable to the other Party for loss of use of any Works, loss of profit, loss of any contract or for any … Press and hold the LawNow icon and then click "Add to home screen". The court held that “lost profits damages may take the form of ‘direct’ damages or the form of ‘consequential’ damages.” [6] Those profits lost on the breached contract itself, such as the amount the non-breaching party would have received, less expenses saved, are considered direct damages. Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. The court held that although the liability of the ship owner represented a liability “to any other party”, it was nevertheless a direct liability which was not caught by the exclusion clause. Click on the 'start' button and save as a bookmark. The Buyer subsequently indicated that it intended to amend its claim to include a claim for diminution in the value of the vessel by reason of the defects. Technical cookies are required for the site to function properly, to be legally compliant and secure. No Consequential Damages. You've probably seen this type of "exclusion clause" hundreds of times in ICT and other commercial contracts and not thought much of it. The Government has today announced that the deadline for building owners to complete their applications to the Building Safety Fund has been extended to 30 June 2021 (from 31 December). Buyers and sellers often negotiate the scope and types of damages subject to indemnification under the purchase agreement, including whether consequential damag… Personalisation cookies collect information about your website browsing habits and offer you a personalised user experience based on past visits, your location or browser settings. Small and medium sized enterprises (SMEs) are a key aspect of the UAE’s economy helping drive growth and diversification. This website uses cookies so that we can provide you with the best user experience possible. For instance, a purchase agreement will often provide that the liability of the seller under … M&A transaction documents often contain an exclusion or limitation of the seller’s liability for ‘consequential’, ‘indirect’ or ‘special’ losses suffered by the purchaser. The arbitra… Several decisions of the English Court of Appeal have established that contractual exclusions for “consequential and indirect losses” will be limited to losses which fall within what is known as the “second limb” of Hadley v Baxendale. It is common practice in international standard form EPC contracts (such as ENAA and FIDIC) to refer to both “indirect” and “consequential” loss or damage in exclusion of liability clauses. This judgment is likely to add to the growing debate over the proper interpretation of indirect and consequential loss exclusions under English law. A new tile linking to LawNow will now appear on the start menu. Such an interpretation has been criticised as one which the average businessman would not expect. Don’t expect others to know what losses you are trying to exclude. This case has increased the uncertainty around which losses will be consequential. We do this to optimise the mix of channels to provide you with our content. The loss of such a contract would not be recoverable unless both parties knew that the contract might be lost in the event of such a breach. Choy Chee Yean is a Partner with the Projects & Infrastructure Practice Group. Lost profit, lost rents, and lost business opportunities are examples of consequential damages that could be incurred as a result of a direct physical loss to property. They can significantly reduce the breaching party’s liability, sometimes by staggering amounts of money. The Government has today announced that the deadline for building owners to complete their applications to the Building Safety Fund has been extended to 30 June 2021 (from 31 December). In Star Polaris the Commercial Court considered the meaning of the phrase "consequential or special losses, damages or expenses" as it appeared in an exclusion clause in a contract for the construction of a vessel (the Contract). The Brexit transition period – during which, broadly, the status quo continues – will end on 31 December 2020. Our combination of practice excellence and deep industry expertise provides a distinct competitive advantage to our clients, bringing together legal expertise, commercial insight and close professional support. In the "Add to Home Screen" dialog window, select the "add" button. The ship owner (who engaged the seaman) paid these costs and compensation, and sought to pass them on to the negligent port authority. Introduction. The series brings together CMS lawyers and experts to discuss key industry topics impacting, innovating and disrupting... Today, CMS launched its new publication which is designed to provide guidance on the law governing electronic execution of deeds and documents and the practicalities associated with using e-signing platforms, in all UK jurisdictions. In the meantime, parties negotiating contracts with such exclusions should be aware of the arguments being made for a broadening of the traditional approach. But the difference between direct and consequential damages is often about as clear as a dense fog off the coast of Maine. 2. After the considering the recent judicial criticism of the traditional approach noted above, O’Farrell J in the Technology and Construction Court accepted the submission “that any general understanding of the meaning of ‘indirect or consequential loss’ must not override the true construction of that clause when read in context against the other provisions in the Logistics Contract and the factual matrix”. From a legal standpoint, an enforceable contract is present when it is: expressed by a valid offer and acceptance, has adequate consideration, mutual assent, capacity, and legality. If you want to individually select which cookies we can set, please click "Select preferences" below. The court interpreted the exclusion of liability for “indirect or consequential” losses, including “the liabilities of [the ship owner] to any other party” to exclude only those liabilities to other parties which were “indirect or consequential”, not all liabilities to third parties. In order to qualify for funding, the remedial works must start on... China’s Belt and Road initiative has the potential to help nations across Central and Eastern Europe meet their diverse and growing infrastructure needs. As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. If you agree to this, please click "Accept all" below. Notwithstanding anything to the contrary contained in this Agreement or provided for under any applicable Law, no party hereto shall be liable to any other Person, either in contract or in tort, for any consequential, inciden-tal, indirect, special or punitive damages of such other Person, [including] [or any] Exclusion of liability for “indirect or consequential” losses. Click on the "..." icon in the bottom-right of the screen. Loss of profits due to an interruption of normal business practices. Launch the website from your Home screen by tapping its icon. Law-Now Zones provide expert analysis on specialist topics. In merger and acquisition (“M&A”) transactions, the definitive purchase agreement (whether asset purchase agreement, stock purchase agreement, or merger agreement) typically contains representations and warranties and related indemnification covenants. edgenuity is not liable for any indirect, special, incidental or consequential damages arising out of or related to this agreement (including, without limitation, costs of delay; loss of data, records or information; and lost profits), even if it … Click on the "..." icon in the bottom-right of the screen. However, in order for someone to win consequential damages in a lawsuit, the damages must have been a foreseeable result of that incident. These cookies “remember” that you have visited a website and this information may be shared with the providers of analytics services (see details in our privacy policy). at Keating Chambers. The full report can... We would like to use cookies that will enable us to analyse the use of our websites and to personalise the content for you. The shipping contract excluded losses for “consequential … losses, damages or expenses” and this included a claim for diminution in value. These cookies “remember” that you have visited a website and this information may be shared with the providers of analytics services (see details in our privacy policy). Save Law-Now to your mobile device home screen for easy access, Several decisions of the English Court of Appeal have established that contractual exclusions for “consequential and indirect losses” will be limited to losses which fall within what is known as the “second limb” of, The traditional approach of English law has been that exclusions for “consequential” or “indirect “losses will usually exclude only those losses falling within the second category described above. Click on the 'menu' button again and select "Bookmarks". according to the usual course of things, from a breach of contract. The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. The Claimant ("the Buyer") purchased a ship from the Defendant ("the Seller"). The arguments made by Sony in this case would have dramatically expanded the reach of the clause in comparison to the traditional approach which is thought not to have resulted in a single reported case where losses have been effectively excluded. When drafting exclusion clauses it is best to specify which types of loss are excluded. For a more detailed analysis of the traditional approach and the arguments for change please see the article by two of the present authors published in the International Construction Law Review noted below. In the forms files of many business attorneys, a ubiquitous boilerplate clause addresses the dreaded “special, indirect, or consequential” damages. Consequential loss exclusion clauses: Issues for owners and contractors. Details concerning the tools in use are in our privacy policy. The EU would like to extend the transition period, to negotiate a fuller trade deal, but the UK has said no. exclusion of indirect damages. Indirect and consequential loss exclusions: English law holds the line for now. As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. Hadley v Baxendaleis an old and well-known decision in English law establishing a fundamental division between two types of recoverable losses for breach of contract: 1. One of the most common types of clause is one that attempts to limit liability for “indirect or consequential” loss or damage. 2E published, marketed and sold various home entertainment media such as Blu-ray discs, DVDs and CDs. According to the court, this clause was “unhappily drafted” because the supposed examples of damages intended to be excluded by the phrase “indirect or consequential loss or damage” were qualified by the parenthetical to only be excluded if they in fact constituted indirect or consequential loss or damage to begin with. Similarly, consequential damages are not necessarily indirect damages—some courts suggest this is true, but others do not. This website uses cookies so that we can provide you with the best user experience possible. Several initiatives, including accelerator programmes, incubators and a multitude of free zones geared towards promoting... “For too long, modern and innovative approaches to public procurement have been bogged down in bureaucratic, process-driven procedures. For example, if the breach involved the destruction of a factory, both the cost of rebuilding and the loss of production suffered during rebuilding would fall within this first category. This is particularly relevant to those who use standard forms of contract, such as those in the construction industry (where, for instance, the NEC3 form includes an optional clause (X18) for capping indirect or consequential losses). The court said that a party seeking to limit liability for such losses must do so by using clear and unambiguous language. The case concerned whether a ports authority was liable to pay the costs of repatriating the body and paying compensation to relatives for the death of a Ukrainian merchant seaman. The claimant (the Buyer) bought the vessel (Star Polaris) from the defendant (the Yard). "Neither party will be liable for any indirect or consequential loss under or in connection with this contract". If you agree to this, please click "Accept all" below. This category depends upon additional facts being known to both parties. Following delivery, the ship suffered a serious engine failure and was towed to Korea for repairs. The case follows recent judicial commentary criticising the traditional approach and may suggest a more case-by-case approach to the interpretation of such exclusions (whether or not the same outcome is reached). and consequential damages is unhelpful. For example, consequential damages are often awarded to reimburse an accident victims loss of wages, when he could not work for weeks after being injured in an automobile accident. Exclusion and limitation clauses should be drafted to comply with the legislation regarding fairness where the legislation applies  (Please. The judge held that "indirect" damages were irrecoverable in any event, and that, as a matter of interpretation, "consequential" must mean something similar, and so the costs Davy McKee thought they were excluding (loss of profit and overhead … The cost of repairs to the vessel; ii. For advice on construction contracts and other construction matters, he may be contacted at chee.yean.choy@sg.rajahtann.com. In order to qualify for funding, the remedial works must start on... “For too long, modern and innovative approaches to public procurement have been bogged down in bureaucratic, process-driven procedures. In this most recent case, a more direct assault has been made on the traditional approach by reference to the above criticism. Technical cookies are required for the site to function properly, to be legally compliant and secure. In the case of the factory, therefore, such an exclusion would not affect any claim for ordinary loss of production suffered during the period the factory was unavailable. Although upholding the traditional interpretation in the circumstances of the case before it, the decision appears to accept the need to give such clauses their natural and ordinary interpretation in the context of the agreement as a whole and any relevant factual matrix. This case appears to be the first occasion on which a direct attempt to overcome the traditional approach has been made by reference to the recent judicial criticism of it (Star Polaris being a case where the rule was distinguished by reference to specific drafting). Hadley v Baxendale is an old and well-known decision in English law establishing a fundamental division between two types of recoverable losses for breach of contract: Damages that may fairly and reasonably be considered as arising naturally, i.e. Persistent cookies, however, remain and continue functioning on repeat visits. Care should be taken when drafting to ensure that a clause excludes what it is supposed to. Transforming Public Procurement – the Final Frontier? (9) A statement in the following language: This warranty gives you specific legal rights, and you may also … For example, Clause 17.6 of the FIDIC Silver Book provides: “Neither Party shall be liable to the other Party for loss of use of any Works, Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. Consequential loss exclusion clauses are very common in commercial contracts, especially in those relating to construction and energy projects. It is of note, therefore, that the court applied the traditional approach whilst accepting the need to give the words “indirect” and “consequential” their natural and ordinary meaning, in the context of the agreement as a whole and the relevant factual matrix. The contract contained a clause excluding the port authority from liability for “indirect or consequential” losses in providing stevedoring services, including for “the liabilities of” the ship owner “to any other party”. Introduction While a plaintiff wants an award, a defendant does not because the indirect results of having breached a contract can have a far-reaching impact on the defendant. Law-Now Zones provide expert analysis on specialist topics. Exclusion of liability for “indirect or consequential” losses. Where appropriate, standard forms should be amended to identify the particular types of loss that a party is conscious of that it wishes to exclude. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. The claim was made under a stevedoring contract between the ship owner and the port authority. In 2002, one member of the House of Lords stated that he wished to reserve the question as to whether the traditional approach was correct (Caledonia North Sea Limited v BT plc). Several decisions of the English Court of Appeal have established that contractual exclusions for “consequential and indirect losses” will be limited to losses which fall within what is known as the “second limb” of Hadley v Baxendale. Excluding “consequential losses” has always been, and remains, dangerous. The Court held that the express wording of the limitation clause in Dow excluded only “loss of profits and damages arising in the context of indirect or consequential damages” (emphasis added). You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. British Sugar PLC v NEI Power Products Ltd [1997] CLC 622, Caledonia North Sea Limited v British Telecommunications plc [2002] BLR 139, Scottish Power UK Plc v BP Exploration Operating Company Ltd [2015] EWHC 2658 (Comm), Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372, Star Polaris LLC v HHIC-Phil Inc [2016] EWHC 2941 (Comm), Exclusions for indirect and consequential loss: English law on the brink of change? Said that a clause excludes what it is best to specify which types of loss excluded... ] yielded 35 cases, 7 loss or damage in this regard is spelt. Which the average businessman would not expect or most popular pages the screen usual course of,. Damages is often about as clear as a bookmark naturally, i.e a serious engine failure fuller trade deal but... 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