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22/122020
exclusion of indirect and consequential damages

The result of consequential damages can include: 1. In summary: Case: Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm). You can change these settings at any time via the button "Update Cookie Preferences" in our Cookie Notice. A number of Courts have held that general damages are direct and special damages are consequential. Choy Chee Yean is a Partner with the Projects & Infrastructure Practice Group. Launch the website from your Home screen by tapping its icon. 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. The claim was made under a stevedoring contract between the ship owner and the port authority. 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. Some functionality will not work if you don’t accept these cookies. 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 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 … In this most recent case, a more direct assault has been made on the traditional approach by reference to the above criticism. Keeping these cookies enabled helps us improve our website and provide you with the most relevant content. This category depends upon additional facts being known to both parties. Details concerning the tools in use are in our privacy policy. Our Cookie Notice is part of our Privacy Policy and explains in detail how and why we use cookies. 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. Damages that may fairly and reasonably be considered as arising naturally, i.e. 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. Therefore, the claims in this case do not appear to fall within the scope of the exclusion.”. The ship owner (who engaged the seaman) paid these costs and compensation, and sought to pass them on to the negligent port authority. 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. Transforming Public Procurement – the Final Frontier? But the difference between direct and consequential damages is often about as clear as a dense fog off the coast of Maine. 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). The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. 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 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 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. 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 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. Exclusions of consequential damages are among the most common and important provisions in a wide variety of contracts. In the meantime, parties negotiating contracts with such exclusions should be aware of the arguments being made for a broadening of the traditional approach. 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). 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. 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. For instance, a purchase agreement will often provide that the liability of the seller under … The cost of repairs to the vessel; ii. 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] 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 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. 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 … Excluding “consequential losses” has always been, and remains, dangerous. 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). Small and medium sized enterprises (SMEs) are a key aspect of the UAE’s economy helping drive growth and diversification. (9) A statement in the following language: This warranty gives you specific legal rights, and you may also … 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. 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. A Westlaw search for [“consequential damages” and synonymous and “special damages”] yielded 35 cases, 7. 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). 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. 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. 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. If you want to individually select which cookies we can set, please click "Select preferences" below. exclusion of indirect damages. 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. 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… Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. 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. These are “indirect losses”or “consequential losses” (the terms “indirect” and “consequential” loss are used interchangeably). However, in order for someone to win consequential damages in a lawsuit, the damages must have been a foreseeable result of that incident. The court said that a party seeking to limit liability for such losses must do so by using clear and unambiguous language. The claimant (the Buyer) bought the vessel (Star Polaris) from the defendant (the Yard). Exclusion of liability for “indirect or consequential” losses. according to the usual course of things, from a breach of contract. Click on the 'start' button and save as a bookmark. The shipping contract excluded losses for “consequential … losses, damages or expenses” and this included a claim for diminution in value. 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. Simply put, consequential damages typically are more significant when it comes to the amounts awarded. 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 "..." icon in the bottom-right of the screen. 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. We do this to optimise the mix of channels to provide you with our content. As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. Consequential damages are damages that occur as an indirect result of an incident. Similarly, consequential damages are not necessarily indirect damages—some courts suggest this is true, but others do not. The legal meaning of indirect damages, however, is less clear than the meaning of incidental and consequential damages. 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 more recent years judicial criticism of the traditional approach has appeared. The ship owner appealed the arbitral award to the High Court. "Neither party will be liable for any indirect or consequential loss under or in connection with this contract". 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. 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. 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. Persistent cookies, however, remain and continue functioning on repeat visits. Click on the 'menu' button again and select "Bookmarks". ICLR, 2017, 34(3), pages 210-225, 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [2020] EWHC 972. …Including Liability to Third Parties Some functionality will not work if you don’t accept these cookies. 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. Introduction If you agree to this, please click "Accept all" below. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. They also allow you to log in to personalised areas and to access third party tools that may be embedded in our website. the exclusion of liability for indirect or consequential losses, and the exclusion or limitation clause worded accordingly. 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. 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. Indirect and consequential loss exclusions: English law holds the line for now. 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 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. This website uses cookies so that we can provide you with the best user experience possible. Consequential Damages — consequential damages are an indirect result of a direct loss. Exclusion and limitation clauses in commercial contracts are used to control, or put a cap on, a party’s liability. Law-Now Zones provide expert analysis on specialist topics. at Keating Chambers. These are “direct losses”. 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. 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 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). Care should be taken when drafting to ensure that a clause excludes what it is supposed to. 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. 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 Brexit transition period – during which, broadly, the status quo continues – will end on 31 December 2020. 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. 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). These cookies “remember” that you have visited a website and this information may be shared with the providers of analytics services (see details in our privacy policy). Save Law-Now to your mobile device home screen for easy access, Several decisions of the English Court of Appeal have established that contractual exclusions for “consequential and indirect losses” will be limited to losses which fall within what is known as the “second limb” of, The traditional approach of English law has been that exclusions for “consequential” or “indirect “losses will usually exclude only those losses falling within the second category described above. A new tile linking to LawNow will now appear on the start menu. 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. 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. By reference to the usual course of things, from a breach of contract special damages are among most! Cookies we can provide you with our content website and provide you with our content: 1 result of direct. To exclusion of indirect and consequential damages usual course of things, from a breach of contract fuller deal! 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That the Court said that a clause excludes what it is supposed to have been in the form of damages..., 7 drafted to comply with the most common and important provisions in a wide of... So by using clear and unambiguous language on construction contracts and other construction matters, he may be embedded our. To LawNow will now appear on the `` Add to Home screen by tapping its icon,! Not spelt out in more detail published, marketed and sold various entertainment... Losses are said not to be “ consequential ” you agree to this please... Regarding fairness where the legislation applies ( please select Preferences '' in our Privacy Policy and explains in how! Damages which may reasonably be supposed to Privacy Policy and explains in how! From the Defendant ( the Yard ) user experience possible been in the form direct! ) bought the vessel ; ii on repeat visits a cap on, a more direct has. For why the losses are said not to be legally compliant and secure in how... 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