exclusion of indirect and consequential damages

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. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. 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. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. Care should be taken when drafting to ensure that a clause excludes what it is supposed to. 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. Law-Now Zones provide expert analysis on specialist topics. by Arch Fletcher. In the meantime, parties negotiating contracts with such exclusions should be aware of the arguments being made for a broadening of the traditional approach. 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 are very common in commercial contracts, especially in those relating to construction and energy projects. A new tile linking to LawNow will now appear on the start menu. As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. 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, 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. 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 Buyer sought damages which included: i. 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 … 15 Sep 2004. 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). A Westlaw search for [“consequential damages” and synonymous and “special damages”] yielded 35 cases, 7. 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. 2E published, marketed and sold various home entertainment media such as Blu-ray discs, DVDs and CDs. 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 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 result of consequential damages can include: 1. Click on the 'menu' button again and select "Bookmarks". 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 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… ICLR, 2017, 34(3), pages 210-225, 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [2020] EWHC 972. 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). Click on the 'start' button and save as a bookmark. 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 This website uses cookies so that we can provide you with the best user experience possible. 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 want to individually select which cookies we can set, please click "Select preferences" below. Click on the 'menu' button again and select "Bookmarks". The claim was made under a stevedoring contract between the ship owner and the port authority. 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. Technical cookies are required for the site to function properly, to be legally compliant and secure. You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. Introduction The Claimant ("the Buyer") purchased a ship from the Defendant ("the Seller"). 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. Simply put, consequential damages typically are more significant when it comes to the amounts awarded. 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. "Neither party will be liable for any indirect or consequential loss under or in connection with this contract". These are “indirect losses”or “consequential losses” (the terms “indirect” and “consequential” loss are used interchangeably). 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 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 exclusion of liability for indirect or consequential losses, and the exclusion or limitation clause worded accordingly. You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. according to the usual … In the forms files of many business attorneys, a ubiquitous boilerplate clause addresses the dreaded “special, indirect, or consequential” damages. 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 … 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. The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. 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. 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). Buyers and sellers often negotiate the scope and types of damages subject to indemnification under the purchase agreement, including whether consequential damag… Similarly, consequential damages are not necessarily indirect damages—some courts suggest this is true, but others do not. Persistent cookies, however, remain and continue functioning on repeat visits. 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. We do this to optimise the mix of channels to provide you with our content. To take full advantage of our website, we recommend that you click on “Accept All”. 2. In more recent years judicial criticism of the traditional approach has appeared. 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). 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. For instance, a purchase agreement will often provide that the liability of the seller under … It is unfortunate that the court’s reasoning in this regard is not spelt out in more detail. 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. 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. But the difference between direct and consequential damages is often about as clear as a dense fog off the coast of Maine. 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. 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. This category depends upon additional facts being known to both parties. A new tile linking to LawNow will now appear on the start menu. 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. In the "Add to Home Screen" dialog window, select the "add" button. 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. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. 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. 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. 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. You've probably seen this type of "exclusion clause" hundreds of times in ICT and other commercial contracts and not thought much of it. 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. 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. 1. 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. 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. (9) A statement in the following language: This warranty gives you specific legal rights, and you may also … Such an interpretation has been criticised as one which the average businessman would not expect. 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. 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. This website uses cookies so that we can provide you with the best user experience possible. Transforming Public Procurement – the Final Frontier? Small and medium sized enterprises (SMEs) are a key aspect of the UAE’s economy helping drive growth and diversification. Exclusions of consequential damages are among the most common and important provisions in a wide variety of contracts. Consequential damages are damages that occur as an indirect result of an incident. 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. Technical cookies are required for the site to function properly, to be legally compliant and secure. 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. Law-Now Zones provide expert analysis on specialist topics. The first issue was the meaning of the words "indirect and consequential loss". Click on the "..." icon in the bottom-right of the screen. Launch the website from your Home screen by tapping its icon. Exclusion and limitation clauses in commercial contracts are used to control, or put a cap on, a party’s liability. Keeping these cookies enabled helps us improve our website and provide you with the most relevant content. Exclusion of liability for “indirect or consequential” losses. exclusion of indirect damages. Indirect and Consequential Loss. according to the usual course of things, from a breach of contract. Joe Colgan, EC Harris. 2 Entertain Video Ltd (“2E”) sued Sony for, among other things, loss of profit arising from a fire at Sony’s warehouse in Enfield. The claimant (the Buyer) bought the vessel (Star Polaris) from the defendant (the Yard). Click on the "..." icon in the bottom-right of the screen. 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). 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. 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. 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. If you agree to this, please click "Accept all" below. 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? 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. Don’t expect others to know what losses you are trying to exclude. 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. 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. Press and hold the LawNow icon and then click "Add to home screen". Excluding “consequential losses” has always been, and remains, dangerous. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. Consequential Damages — consequential damages are an indirect result of a direct loss. 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). When drafting exclusion clauses it is best to specify which types of loss are excluded. and consequential damages is unhelpful. This judgment is likely to add to the growing debate over the proper interpretation of indirect and consequential loss exclusions under English law. To take full advantage of our website, we recommend that you click on “Accept All”. A number of Courts have held that general damages are direct and special damages are consequential. In summary: Case: Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm). Keeping these cookies enabled helps us improve our website and provide you with the most relevant content. 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. 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. 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). Towage fees, agency fees, survey fees, off hire and off hire bunkers caused by the engine failure. However, in order for someone to win consequential damages in a lawsuit, the damages must have been a foreseeable result of that incident. Exclusion of Consequential Damages. Transforming Public Procurement – the Final Frontier? The Brexit transition period – during which, broadly, the status quo continues – will end on 31 December 2020. 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. The court said that a party seeking to limit liability for such losses must do so by using clear and unambiguous language. Consequential loss exclusion clauses: Issues for owners and contractors. Details concerning the tools in use are in our privacy policy. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. 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. Choy Chee Yean is a Partner with the Projects & Infrastructure Practice Group. Persistent cookies, however, remain and continue functioning on repeat visits. 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). These are “direct losses”. The EU would like to extend the transition period, to negotiate a fuller trade deal, but the UK has said no. No Consequential Damages. 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. The Global Life Sciences & Healthcare Sector Group is delighted to release the latest episode in its video/podcast series, On the Pulse. Following delivery, the ship suffered a serious engine failure and was towed to Korea for repairs. They can significantly reduce the breaching party’s liability, sometimes by staggering amounts of money. In this most recent case, a more direct assault has been made on the traditional approach by reference to the above criticism. If you agree to this, please click "Accept all" below. The ship owner appealed the arbitral award to the High Court. Such an interpretation has been criticised as one which the average businessman would not expect. 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. Launch the website from your Home screen by tapping its icon. Any other damages which may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract. Details concerning the tools in use are in our privacy policy. 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). As such, the Court concluded that this clause did not exclude lost profits in the form of 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 shipping contract excluded losses for “consequential … losses, damages or expenses” and this included a claim for diminution in value. 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 case has increased the uncertainty around which losses will be consequential. 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). 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. 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). The cost of repairs to the vessel; ii. Some functionality will not work if you don’t accept these cookies. 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. 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. 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. In the "Add to Home Screen" dialog window, select the "add" button. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. Loss of profits due to an interruption of normal business practices. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. Introduction. 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.". Click on the 'start' button and save as a bookmark. Exclusion of liability for “indirect or consequential” losses. 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 arbitra… …Including Liability to Third Parties 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. The ship owner (who engaged the seaman) paid these costs and compensation, and sought to pass them on to the negligent port authority. 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 …

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