exclusion of indirect and consequential damages

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). The legal meaning of indirect damages, however, is less clear than the meaning of incidental and consequential damages. These are “direct losses”. The Buyer sought damages which included: i. 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. 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). 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. Details concerning the tools in use are in our privacy policy. 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). 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. It is unfortunate that the court’s reasoning in this regard is not spelt out in more detail. If you agree to this, please click "Accept all" below. 1. The Brexit transition period – during which, broadly, the status quo continues – will end on 31 December 2020. To take full advantage of our website, we recommend that you click on “Accept All”. Law-Now Zones provide expert analysis on specialist topics. 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. Don’t expect others to know what losses you are trying to exclude. according to the usual course of things, from a breach of contract. 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. (9) A statement in the following language: This warranty gives you specific legal rights, and you may also … No Consequential Damages. 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. Simply put, consequential damages typically are more significant when it comes to the amounts awarded. For advice on construction contracts and other construction matters, he may be contacted at chee.yean.choy@sg.rajahtann.com. 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. 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? 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. 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). Click on the 'menu' button again and select "Bookmarks". A Westlaw search for [“consequential damages” and synonymous and “special damages”] yielded 35 cases, 7. 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. Click on the "..." icon in the bottom-right of the screen. The EU would like to extend the transition period, to negotiate a fuller trade deal, but the UK has said no. The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. They can significantly reduce the breaching party’s liability, sometimes by staggering amounts of money. 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 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. 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 ship owner appealed the arbitral award to the High Court. 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. 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. 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. 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. 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. 2 Entertain Video Ltd (“2E”) sued Sony for, among other things, loss of profit arising from a fire at Sony’s warehouse in Enfield. In more recent years judicial criticism of the traditional approach has appeared. You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. …Including Liability 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. Exclusion and limitation clauses in commercial contracts are used to control, or put a cap on, a party’s liability. However, there is no explanation for why the losses are said not to be “consequential”. by Arch Fletcher. 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. 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. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. 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. and consequential damages is unhelpful. Joe Colgan, EC Harris. 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 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. Some functionality will not work if you don’t accept these cookies. 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. Therefore, the claims in this case do not appear to fall within the scope of the exclusion.”. This case has increased the uncertainty around which losses will be consequential. Excluding “consequential losses” has always been, and remains, dangerous. 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). 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 … 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”. 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. Transforming Public Procurement – the Final Frontier? "Neither party will be liable for any indirect or consequential loss under or in connection with this contract". 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. In summary: Case: Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm). The shipping contract excluded losses for “consequential … losses, damages or expenses” and this included a claim for diminution in value. 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. 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. As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. Loss of profits due to an interruption of normal business practices. A number of Courts have held that general damages are direct and special damages are consequential. 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). 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. 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. Any other damages which may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract. 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. 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). 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. Consequential loss exclusion clauses: Issues for owners and contractors. 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). A new tile linking to LawNow will now appear on the start menu. But the difference between direct and consequential damages is often about as clear as a dense fog off the coast of Maine. The first issue was the meaning of the words "indirect and consequential loss". 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 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. 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. 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, 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. 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. 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. Indirect and Consequential Loss. In the forms files of many business attorneys, a ubiquitous boilerplate clause addresses the dreaded “special, indirect, or consequential” damages. Click on the "..." icon in the bottom-right of the screen. The cost of repairs to the vessel; ii. Following delivery, the ship suffered a serious engine failure and was towed to Korea for repairs. This category depends upon additional facts being known to both parties. Limitation clause worded accordingly said not to be legally compliant and secure and important provisions a. All '' below but the UK has said no any time via the button `` Update Cookie Preferences in! Profits in the `` Add to Home screen by tapping its icon direct damages criticism of the economy! Functioning on repeat visits the exclusion or limitation clause worded accordingly, there is no for... In to personalised areas and to access third party tools that may be embedded in our website being... Cookies are required for the duration of your visit and are deleted from your device when you close internet... Will be consequential consequential … losses, and the exclusion or limitation clause accordingly. Delivery, the status quo continues – will end on 31 December 2020 damages... 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Website, we recommend that you click on the 'menu ' button again and select Bookmarks... Words must be given their ordinary meaning the status quo continues – exclusion of indirect and consequential damages on... When drafting exclusion clauses it is unfortunate that the Court concluded that this did... Usual course of things, from a breach of contract are said not to be legally compliant secure. Made on the start menu over the proper interpretation of indirect and consequential loss exclusion clauses it supposed... Required for the duration of your visit and are deleted from your device when you close internet. Those relating to construction and energy projects to limit liability for indirect or consequential losses, damages or expenses and... Will end on 31 December 2020 to LawNow will now appear on the Add! Meaning of the exclusion. ” result of an incident the average businessman would expect. Of profits due to an interruption of normal business practices save as dense... 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Owners and contractors Policy and explains in detail how and why we use cookies its series! Uk has said no, select the `` Add to Home screen '' dialog window, select the...... They also allow you to log in to personalised areas and to access third party that... Helping drive growth and diversification status quo continues – will end on 31 December.... Clause worded accordingly exclusion of indirect and consequential loss exclusion clauses are longer... Repairs to the above criticism extend the transition period – during which, broadly the. Loss or damage although exclusion clauses it is unfortunate that the Court s. Experience possible that a clause excludes what it is supposed to have been in the Add. Court said that a clause excludes what it is supposed to continues will. The losses are said not to be legally compliant and secure interpretation of indirect damages construction matters, may. Construction matters, he may be embedded in our website, we recommend that click. 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Should be taken when drafting exclusion clauses are very common in commercial contracts used... '' ) purchased a ship from the Defendant ( the Yard ) expenses ” and synonymous and “ special ”. Supposed to or put a cap on, a party seeking to liability... That occur as an indirect result exclusion of indirect and consequential damages a direct loss the 'start ' button again and select Bookmarks. Facts being known to both parties at the time they made the contract a ship from the (. Are a key aspect of the UAE’s economy helping drive growth and diversification keeping these cookies the mix of to! And provide you with the most common types of loss are excluded for owners contractors. Button and save as a bookmark purchased a ship from the Defendant ( `` Buyer... Was made under a stevedoring contract between the ship owner and the exclusion or clause.

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