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 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. Analytics cookies collect anonymised information such as the number of site visitors or most popular pages. Launch the website from your Home screen by tapping its icon. 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. If you agree to this, please click "Accept all" below. Click on the 'start' button and save as a bookmark. exclusion of indirect damages. Consequential loss exclusion clauses: Issues for owners and contractors. 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. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. If you want to individually select which cookies we can set, please click "Select preferences" below. 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 Brexit transition period – during which, broadly, the status quo continues – will end on 31 December 2020. 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. Loss of customers due to cancellations or delays. Consequential loss exclusion clauses are very common in commercial contracts, especially in those relating to construction and energy projects. This case has increased the uncertainty around which losses will be consequential. A new tile linking to LawNow will now appear on the start menu. This category depends upon additional facts being known to both parties. 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). 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. However, in order for someone to win consequential damages in a lawsuit, the damages must have been a foreseeable result of that incident. In the forms files of many business attorneys, a ubiquitous boilerplate clause addresses the dreaded “special, indirect, or consequential” damages. The EU would like to extend the transition period, to negotiate a fuller trade deal, but the UK has said no. Click on the 'start' button and save as a bookmark. by Arch Fletcher. Click on the 'menu' button again and select "Bookmarks". according to the usual course of things, from a breach of contract. For instance, a purchase agreement will often provide that the liability of the seller under … 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 … 2. 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. 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. 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. 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). 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] When drafting exclusion clauses it is best to specify which types of loss are excluded. Buyers and sellers often negotiate the scope and types of damages subject to indemnification under the purchase agreement, including whether consequential damag… The claim was made under a stevedoring contract between the ship owner and the port authority. Don’t expect others to know what losses you are trying to exclude. 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). Introduction. 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. 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. 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. 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. 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). No Consequential Damages. 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. Such an interpretation has been criticised as one which the average businessman would not expect. This website uses cookies so that we can provide you with the best user experience possible. For advice on construction contracts and other construction matters, he may be contacted at chee.yean.choy@sg.rajahtann.com. This judgment is likely to add to the growing debate over the proper interpretation of indirect and consequential loss exclusions under English law. 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 the "Add to Home Screen" dialog window, select the "add" button. Click on the 'menu' button again and select "Bookmarks". 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? 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 … The Global Life Sciences & Healthcare Sector Group is delighted to release the latest episode in its video/podcast series, On the Pulse. Consequential Damages — consequential damages are an indirect result of a direct loss. Therefore, the claims in this case do not appear to fall within the scope of the exclusion.”. 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. Session cookies only last for the duration of your visit and are deleted from your device when you close your internet browser. Technical cookies are required for the site to function properly, to be legally compliant and secure. Click on the "..." icon in the bottom-right of the screen. 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. 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). For a more detailed analysis of the traditional approach and the arguments for change please see the article by two of the present authors published in the International Construction Law Review noted below. the exclusion of liability for indirect or consequential losses, and the exclusion or limitation clause worded accordingly. To take full advantage of our website, we recommend that you click on “Accept All”. As such, the Court concluded that this clause did not exclude lost profits in the form of direct damages. 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". Launch the website from your Home screen by tapping its icon. In this most recent case, a more direct assault has been made on the traditional approach by reference to the above criticism. However, there is no explanation for why the losses are said not to be “consequential”. The judge appears to have disagreed with this argument on the basis that the lost profits were nevertheless caused as a direct and natural result of the fire. A new tile linking to LawNow will now appear on the start menu. ICLR, 2017, 34(3), pages 210-225, 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [2020] EWHC 972. The Claimant ("the Buyer") purchased a ship from the Defendant ("the Seller"). 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. They can significantly reduce the breaching party’s liability, sometimes by staggering amounts of money. 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. 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. Loss of profits due to an interruption of normal business practices. Exclusion of liability for “indirect or consequential” losses. These are “direct losses”. Indirect and Consequential Loss. 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. Persistent cookies, however, remain and continue functioning on repeat visits. 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. 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. 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