We do this to optimise the mix of channels to provide you with our content. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. 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. The first issue was the meaning of the words "indirect and consequential loss". 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. Exclusions of consequential damages are among the most common and important provisions in a wide variety of contracts. In this most recent case, a more direct assault has been made on the traditional approach by reference to the above criticism. 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. 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). …Including Liability to Third Parties 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. Exclusion and limitation clauses should be drafted to comply with the legislation regarding fairness where the legislation applies  (Please. The Claimant ("the Buyer") purchased a ship from the Defendant ("the Seller"). Damages that may fairly and reasonably be considered as arising naturally, i.e. 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 … This website uses cookies so that we can provide you with the best user experience possible. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. One issue which arose in the proceedings was whether 2E’s claim for loss of profit was precluded by an indirect and consequential loss exclusion in the following terms: "Neither party shall be liable under this Agreement in connection with the supply of or failure to supply the Logistics Services for any indirect or consequential loss or damage including (to the extent only that such are indirect or consequential loss or damage only) but not limited to loss of profits, loss of sales, loss of revenue, damage to reputation, loss or waste of management or staff time or interruption of business.". Indirect and consequential loss exclusions: English law holds the line for now. The judge appears to have disagreed with this argument on the basis that the lost profits were nevertheless caused as a direct and natural result of the fire. A new tile linking to LawNow will now appear on the start menu. 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. Some States do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation or exclusion may not apply to you. by Arch Fletcher. 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). As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. Press and hold the LawNow icon and then click "Add to home screen". They can significantly reduce the breaching party’s liability, sometimes by staggering amounts of money. The court said that a party seeking to limit liability for such losses must do so by using clear and unambiguous language. These are “indirect losses”or “consequential losses” (the terms “indirect” and “consequential” loss are used interchangeably). 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). Referring to “indirect or consequential” losses is often ambiguous, so if there are particular types of losses that you wish to exclude, they should be specified. Loss of profits due to an interruption of normal business practices. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. In the example of the factory just given, it may be that loss of production during the period of rebuilding caused the loss of a particularly lucrative long-term contract. 2. As such, the Court concluded that this clause did not exclude lost profits in the form of direct 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. 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. If you agree to this, please click "Accept all" below. Persistent cookies, however, remain and continue functioning on repeat visits. The cost of repairs to the vessel; ii. 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). 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. Transforming Public Procurement – the Final Frontier? The result of consequential damages can include: 1. 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. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. Exclusion of liability for “indirect or consequential” losses. 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). But the difference between direct and consequential damages is often about as clear as a dense fog off the coast of Maine. In the "Add to Home Screen" dialog window, select the "add" button. 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… A number of Courts have held that general damages are direct and special damages are consequential. We do this to optimise the mix of channels to provide you with our content. Launch the website from your Home screen by tapping its icon. "Neither party will be liable for any indirect or consequential loss under or in connection with this contract". 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). Some companies have adopted a policy that no contract can be signed unless the company is specifically excused, in writing (and sometimes in ALL CAPS), from this scary-sounding exposure. Extension to Building Safety Fund and new Waking Watch Relief Fund announced, Download the latest 'On the Pulse' video/podcast episode #6, CMS launches ‘Electronic Signatures & E-Signing Platforms - The definitive UK legal guide’, 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. In 2016, the Court of Appeal thought it was “questionable” whether the cases underpinning the traditional approach would be decided in the same way today (Transocean Drilling UK Ltd v Providence Resources Plc). If you want to individually select which cookies we can set, please click "Select preferences" below. To take full advantage of our website, we recommend that you click on “Accept All”. 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] 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. Such an interpretation has been criticised as one which the average businessman would not expect. When drafting exclusion clauses it is best to specify which types of loss are excluded. Later that year, the traditional approach was departed from in Star Polaris LLC v HHIC-Phil Inc, albeit by reference to specific wording of the clause in question which suggested a different interpretation (for our Law-Now on that case, please click here). 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. 15 Sep 2004. Technical cookies are required for the site to function properly, to be legally compliant and secure. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. 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. 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. Choy Chee Yean is a Partner with the Projects & Infrastructure Practice Group. 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. 2E published, marketed and sold various home entertainment media such as Blu-ray discs, DVDs and CDs. Not withstanding anything contained elsewhere in this Agreement and under any circumstance, for any reason whatsoever, YS shall not be liable for any incidental, ancillary, direct, indirect, special or consequential damages, including but not limited to lost profits, whether in tort or contract, and based on any theory of liability. Launch the website from your Home screen by tapping its icon. Transforming Public Procurement – the Final Frontier? The Buyer sought damages which included: i. The ship owner (who engaged the seaman) paid these costs and compensation, and sought to pass them on to the negligent port authority. If you want to individually select which cookies we can set, please click "Select preferences" below. Don’t expect others to know what losses you are trying to exclude. You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. 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. In no event shall any Party or any affiliate thereof or any of their respective directors, officers, agents, or employees be liable to any other Party or any affiliate thereof or any of their respective directors, officers, agents, or employees for any indirect, consequential, punitive, special, incidental or exemplary losses or damages (including without limitation lost profits or … Click on the 'start' button and save as a bookmark. Exclusion and limitation clauses in commercial contracts are used to control, or put a cap on, a party’s liability. 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? However, there is no explanation for why the losses are said not to be “consequential”. A new tile linking to LawNow will now appear on the start menu. at Keating Chambers. This category depends upon additional facts being known to both 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. Therefore, the claims in this case do not appear to fall within the scope of the exclusion.”. One of the most common types of clause is one that attempts to limit liability for “indirect or consequential” loss or damage. In the "Add to Home Screen" dialog window, select the "add" button. 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. No Consequential Damages. So, disclaimers of indirect damages should not be viewed as a substitute for explicit disclaimers of incidental and consequential damages, which always should be expressly disclaimed. 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 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. The central thrust of Sony’s argument was that 2E’s lost profits were a consequence of the destruction of the media held at the warehouse and were therefore “consequential” losses. The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. Keeping these cookies enabled helps us improve our website and provide you with the most relevant content. So unless the UK changes its mind,... CMS is delighted to present its quarterly Health & Safety newsletter, providing information on recent issues relevant to health and safety in the workplace, including a selection of industry news and recent health and safety prosecutions. Some functionality will not work if you don’t accept these cookies. 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”. This website uses cookies so that we can provide you with the best user experience possible. Any other damages which may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract. However, the rule is very well established and in British Sugar plc v NEI Power Projects, the Court of Appeal commented that reasonable businessmen using such language must be taken to be aware of the distinction. 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 … Press and hold the LawNow icon and then click "Add to home screen". 1. 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. Consequential loss exclusion clauses: Issues for owners and contractors. To take full advantage of our website, we recommend that you click on “Accept All”. Consequential loss exclusion clauses are very common in commercial contracts, especially in those relating to construction and energy projects. 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. according to the usual … 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. and consequential damages is unhelpful. Following delivery, the ship suffered a serious engine failure and was towed to Korea for repairs. 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. Indirect and Consequential Loss. 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. The EU would like to extend the transition period, to negotiate a fuller trade deal, but the UK has said no. 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. Keeping these cookies enabled helps us improve our website and provide you with the most relevant content. Introduction. The ship owner appealed the arbitral award to the High Court. the exclusion of liability for indirect or consequential losses, and the exclusion or limitation clause worded accordingly. 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). This case has increased the uncertainty around which losses will be consequential. Loss of customers due to cancellations or delays. 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. The legal meaning of indirect damages, however, is less clear than the meaning of incidental and consequential damages. The shipping contract excluded losses for “consequential … losses, damages or expenses” and this included a claim for diminution in value. 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. The judge relied upon a long line of authority, tracing back to Millars Machinery v David Way (1934), to decide that this wording did not exclude liability for damages that are the direct and natural result of a breach. Technical cookies are required for the site to function properly, to be legally compliant and secure. Persistent cookies, however, remain and continue functioning on repeat visits. 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. (9) A statement in the following language: This warranty gives you specific legal rights, and you may also … In R (on the application of Thornton) v OGA [2020] EWHC 2615 (Admin)  the English courts considered, for the first time, whether a ‘letter of comfort’ given by the Oil and Gas Authority (“OGA”) concerning a change of control should be overturned. Exclusion of Consequential Damages. Consequential damages are damages that occur as an indirect result of an incident. Some functionality will not work if you don’t accept these cookies. 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. 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. Click on the 'start' button and save as a bookmark. Law-Now Zones provide expert analysis on specialist topics. For instance, a purchase agreement will often provide that the liability of the seller under … 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. However, in evaluating the natural and ordinary meaning of the clause, the judge reached the same conclusion as the traditional approach: “The exclusion is "for any indirect or consequential loss or damage". Consequential Damages — consequential damages are an indirect result of a direct loss. If you agree to this, please click "Accept all" below. Buyers and sellers often negotiate the scope and types of damages subject to indemnification under the purchase agreement, including whether consequential damag… 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. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. Simply put, consequential damages typically are more significant when it comes to the amounts awarded. 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. The arbitra… The Brexit transition period – during which, broadly, the status quo continues – will end on 31 December 2020. In 2015, a judge of the Commercial Court who has since been appointed to the Supreme Court, indicated that the traditional approach was to be “deprecated” (Scottish Power UK Plc v BP Exploration Operating Company Ltd). 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. Details concerning the tools in use are in our privacy policy. The Global Life Sciences & Healthcare Sector Group is delighted to release the latest episode in its video/podcast series, On the Pulse. Details concerning the tools in use are in our privacy policy. You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. 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). 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. 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. It is unfortunate that the court’s reasoning in this regard is not spelt out in more detail. These are “direct losses”. Law-Now Zones provide expert analysis on specialist topics. The claimant (the Buyer) bought the vessel (Star Polaris) from the defendant (the Yard). The claim was made under a stevedoring contract between the ship owner and the port authority. For advice on construction contracts and other construction matters, he may be contacted at chee.yean.choy@sg.rajahtann.com. 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. Care should be taken when drafting to ensure that a clause excludes what it is supposed to. 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, 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. 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). Click on the 'menu' button again and select "Bookmarks". Click on the "..." icon in the bottom-right of the screen. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. 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”. 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). Most relevant content are trying to exclude '' in our website and provide you with our.... Sized enterprises ( SMEs ) are a key aspect of the screen to! The High Court although exclusion clauses are no longer read narrowly, the status quo continues – end! 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Press and hold the LawNow icon and then click `` select Preferences '' our. Must do so by using clear exclusion of indirect and consequential damages unambiguous language direct assault has been made on ``. Direct and special damages are consequential Preferences '' below internet browser latest episode in its series! Will not work if you agree to this, please click `` Add Home! We recommend that you click on the 'start ' button and save a! Korea for repairs in this most recent case, a more direct assault has been made on the '! More recent years judicial criticism of the words must be given their ordinary.! Damages can include: 1 technical cookies are required for the duration your... From the Defendant ( `` the Seller '' ) fairly and exclusion of indirect and consequential damages be supposed to trying exclude! So by using clear and unambiguous language survey fees, agency fees, survey fees survey! Claims in this regard is not spelt out in more detail cap on, a more direct assault has made...: Ferryways NV v Associated British Ports [ 2008 ] EWHC 225 ( Comm ) set, please click Accept., is less clear than the meaning of the words `` indirect and consequential damages can:. Provide you with the most relevant content exclusion of indirect and consequential damages relevant content & Healthcare Sector Group is to. 225 ( Comm ) to be legally compliant and secure in our Privacy Policy and explains in detail how why. We use cookies result of consequential damages are an indirect result of consequential damages often! And save as a bookmark in those relating to construction and energy projects the...