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. However, in order for someone to win consequential damages in a lawsuit, the damages must have been a foreseeable result of that incident. This website uses cookies so that we can provide you with the best user experience possible. 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. In the forms files of many business attorneys, a ubiquitous boilerplate clause addresses the dreaded “special, indirect, or consequential” damages. Buyers and sellers often negotiate the scope and types of damages subject to indemnification under the purchase agreement, including whether consequential damag… 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. 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. 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 … Such an interpretation has been criticised as one which the average businessman would not expect. Exclusion of Consequential Damages. 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. Details concerning the tools in use are in our privacy policy. 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. The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. 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. 1. 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 "..." icon in the bottom-right of the screen. Technical cookies are required for the site to function properly, to be legally compliant and secure. The ship owner appealed the arbitral award to the High Court. 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. If you want to individually select which cookies we can set, please click "Select preferences" below. 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. 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. To take full advantage of our website, we recommend that you click on “Accept All”. The Global Life Sciences & Healthcare Sector Group is delighted to release the latest episode in its video/podcast series, On the Pulse. 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 sought damages which included: i. 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 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”. Excluding “consequential losses” has always been, and remains, dangerous. 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. Exclusions of consequential damages are among the most common and important provisions in a wide variety of contracts. 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. In this most recent case, a more direct assault has been made on the traditional approach by reference to the above criticism. Limitation or exclusion clauses which speak only of "consequential loss" or "indirect or consequential loss" ordinarily will not be effective to limit or exclude liability for direct loss of production, loss of revenue or loss of profit. Following delivery, the ship suffered a serious engine failure and was towed to Korea for repairs. These are “direct losses”. 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… Launch the website from your Home screen by tapping its icon. 2. Introduction. 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. Law-Now Zones provide expert analysis on specialist topics. Such an interpretation has been criticised as one which the average businessman would not expect. 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, 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. Introduction Care should be taken when drafting to ensure that a clause excludes what it is supposed to. 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. A new tile linking to LawNow will now appear on the start menu. The first issue was the meaning of the words "indirect and consequential loss". 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] 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). Press and hold the LawNow icon and then click "Add to home screen". 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. 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”. 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 claim was made under a stevedoring contract between the ship owner and the port authority. 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. If you agree to this, please click "Accept all" below. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. These are “indirect losses”or “consequential losses” (the terms “indirect” and “consequential” loss are used interchangeably). Transforming Public Procurement – the Final Frontier? Some functionality will not work if you don’t accept these cookies. However, there is no explanation for why the losses are said not to be “consequential”. 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). As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. 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. Launch the website from your Home screen by tapping its icon. 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. When drafting exclusion clauses it is best to specify which types of loss are excluded. In the "Add to Home Screen" dialog window, select the "add" button. Exclusion of liability for “indirect or consequential” losses. If you agree to this, please click "Accept all" below. The legal meaning of indirect damages, however, is less clear than the meaning of incidental and consequential damages. Persistent cookies, however, remain and continue functioning on repeat visits. …Including Liability to Third Parties 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 … Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. 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? 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. 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. 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. 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, Co-head of the Infrastructure, Construction and Energy Disputes Group | Joint Managing Director for Asia and the Middle East, Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm), Oil & Gas: OGA’s role in M&A transactions – letters of comfort and judicial review, Extension to Building Safety Fund and new Waking Watch Relief Fund announced. We do this to optimise the mix of channels to provide you with our content. In more recent years judicial criticism of the traditional approach has appeared. 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). One of the most common types of clause is one that attempts to limit liability for “indirect or consequential” loss or damage. Loss of profits due to an interruption of normal business practices. The cost of repairs to the vessel; ii. 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). Loss of customers due to cancellations or delays. 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 Entertain Video Ltd (“2E”) sued Sony for, among other things, loss of profit arising from a fire at Sony’s warehouse in Enfield. According to the English Court of Appeal, when used in a limitation clause, both indirect and consequential loss have the same well-established meaning from which the courts cannot, or should not, depart The court said that a party seeking to limit liability for such losses must do so by using clear and unambiguous language. 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. 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. Exclusion of liability for “indirect or consequential” losses. 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. In the "Add to Home Screen" dialog window, select the "add" button. Keeping these cookies enabled helps us improve our website and provide you with the most relevant content. The claimant (the Buyer) bought the vessel (Star Polaris) from the defendant (the Yard). Persistent cookies, however, remain and continue functioning on repeat visits. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. Click on the 'start' button and save as a bookmark. Click on the 'menu' button again and select "Bookmarks". Small and medium sized enterprises (SMEs) are a key aspect of the UAE’s economy helping drive growth and diversification. 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. In summary: Case: Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm). ICLR, 2017, 34(3), pages 210-225, 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [2020] EWHC 972. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. 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... China’s Belt and Road initiative has the potential to help nations across Central and Eastern Europe meet their diverse and growing infrastructure needs. 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). The result of consequential damages can include: 1. A number of Courts have held that general damages are direct and special damages are consequential. 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. 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 … 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. To take full advantage of our website, we recommend that you click on “Accept All”. 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. 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. Some functionality will not work if you don’t accept these cookies. Simply put, consequential damages typically are more significant when it comes to the amounts awarded. 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). They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. 15 Sep 2004. Indirect and Consequential Loss. 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. Towage fees, agency fees, survey fees, off hire and off hire bunkers caused by the engine failure. 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. We do this to optimise the mix of channels to provide you with our content. 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. Choy Chee Yean is a Partner with the Projects & Infrastructure Practice Group. Law-Now Zones provide expert analysis on specialist topics. Consequential loss exclusion clauses: Issues for owners and contractors. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. The arbitra… In the meantime, parties negotiating contracts with such exclusions should be aware of the arguments being made for a broadening of the traditional approach. They can significantly reduce the breaching party’s liability, sometimes by staggering amounts of money. Click on the 'menu' button again and select "Bookmarks". 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". 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). 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. Click on the 'start' button and save as a bookmark. by Arch Fletcher. 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 exclusion of liability for indirect or consequential losses, and the exclusion or limitation clause worded accordingly. 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. Indirect and consequential loss exclusions: English law holds the line for now. 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. 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.". Did not exclude lost profits in the contemplation of both parties at the time they the... Collect anonymised information such as the number of site visitors or most popular.. Losses will be consequential will be consequential more recent years judicial criticism of the UAE’s economy helping drive growth diversification. 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Such an interpretation has been criticised as one which the average businessman would not.... Don ’ t expect others to know what losses you are trying to exclude and why we use cookies clear. ’ t Accept these cookies enabled helps us improve our website technical are. Known to both parties recent years judicial criticism of the exclusion. ” the usual … exclusion liability. Like to extend the transition period – during which, broadly, the Court that! A ship from the Defendant ( the Yard ) seeking to limit liability for “ or! A number of Courts have held that general damages are direct and damages!