To have a right of set-off it would have been necessary for the contractor to have a right to recover a sum of money, but any such right was eliminated by the clause excluding consequential losses. The equivalent exclusion clause at Clause 30.2 of the ENAA forms4 states: ''The Contractor shall in no event be liable to the Owner by way of indemnity or by reason of any breach of the Contract or in tort or otherwise for loss of use of the Plant or any part thereof or for loss of production, loss of profit or loss of any contract, or for any indirect, special or consequential loss or damage that may be suffered by the Owner in connection with the Contract.''. However, without careful drafting, such clauses may not always achieve what the contractor intends. There was no appeal to that aspect of the High Court's judgment. It is also worth noting that cases dealing generally with the concept of consequential loss may be interpreted quite differently. Therefore, if the intention is to exclude liability for all types of loss of profits, the clause must specifically say this. whether the owner's 'spread costs' (overheads such as the costs of personnel, equipment and services contracted from third parties which were wasted as a result of the delay) were within the meaning of consequential losses set out in the mutual indemnities. For the purposes of this article, it is assumed the drafting is clear. The High Court found that the delay had been caused by the owner's breach of contract as the rig had not been in good working condition on delivery. In practice, it can be difficult to determine whether a loss falls within the first or second category. If the intention is to exclude liability for a certain type of loss in all cases, whether the loss is direct or indirect, then one way of avoiding this … This interpretation led the High Court to decide the contractor was entitled to recover the 'spread costs'. Mutual indemnities and exclusion of consequential losses in commercial contract upheld by the Court of Appeal. For an exclusion clause to be effective it must clearly identify what losses are being excluded. Each newsletter has a great deal of content and the daily feed allows you to 'pace' yourself. Sadly, there is no comprehensive list of what losses will always be considered to be "direct" or "consequential". We provide specialist insight and advice to privately owned, family businesses, private equity-backed, AIM and other listed companies. The content is relevant to the areas that I address and the articles are written by counsel who are very experienced in these areas and can communicate in a meaningful and effective way. loss of profit, revenue, goodwill etc.) Questions? An indemnity is an obligation given by one party to a contract to compensate the other for some defined loss. Indemnities protect one party from a contract from suffering financial loss in relation to certain eventualities – usually those that would arise from the conduct of the other contracting party, or over which the other contracting party has control. Damages that may fairly and reasonably be considered as arising naturally, i.e. 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. We work with a variety of clients across a broad range of sectors. The mutual nature of the clause also showed the parties intended this to have a wide meaning. However, one increasingly common form of wording states that party X will not be liable for “indirect or consequential” losses suffered by party Y, including loss or deferment of profit or revenue, loss of business or other specified losses. A consequential loss is an indirect adverse impact caused by damage to business property or equipment. indirect/consequential” losses. A clause excluding liability for "indirect and consequential losses" is of limited value to a contractor. Professional Indemnity & Corporate Liability Property Public Liability Sales & Distribution ... but also an ‘exclusion of consequential loss’ clause. Consequential Loss. ", © Copyright 2006 - 2020 Law Business Research. Visit our hub page for the latest on planning for and coping with the impact of Coronavirus. Decide what specific types of indirect or consequential loss you want to exclude and then list them in the definition... 2. A clause excluding liability for "indirect and consequential losses" is of limited value to a contractor. You've probably seen this type of "exclusion clause" hundreds of times in ICT and other commercial contracts and not thought much of it. Introducing PRO ComplianceThe essential resource for in-house professionals. within an IP licence agreement. Indemnities can cover a range of subject matters. For example, in a case where defects caused an explosion at a methanol plant, the Court found that the reconstruction costs, loss of profits and wasted overheads all arose as a direct result of the breach of contract2. 4NB: Consequential loss may be direct or indirect and may be excluded if it is both indirect and consequential. The parties in this case were the owner of a semi-submersible drilling rig and a contractor who entered into an agreement for the hire of the rig to drill in an area off the south coast of the Republic of Ireland. The detailed consideration by the Court of the words "loss of use" and the subsequent wording in brackets serves as a reminder of the importance of careful and considered drafting of exclusion clauses to reflect clearly the intention of the parties. The main ones are people (death, injury or illness), property damage and consequential loss. Direct losses are those which any reasonable person might expect to follow from the breach. Exclusion of Consequential Damages. The term "consequential loss" is often used in everyday language as shorthand for a broad category of losses including loss of profit, loss of opportunity, loss of goodwill and so on. However, on appeal this was held to be wrong as it was inappropriate to apply this principle of interpretation where the meaning of the words was clear, or where a clause favoured both parties equally, particularly in this case where the parties were of equal bargaining power. Cobar sought to rely on a contractual provision entitling Cobar to terminate the contract for breach if, in Cobar's opinion, the breach was material and incapable of remedy. according to the usual c… Expect top level legal skills, but from a firm built and run at a human scale. The more ambiguous the exclusion clause, the more likely a Court will be to interpret the clause against the party relying on it. Consequential loss is usually covered by professional indemnity (PI) insurance. Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372. However, all too often parties draft a clause excluding liability for "consequential loss"1 without properly understanding what the term means or considering what losses are intended to be excluded from the party's liability. • Receiver – Wants to exclude the indemnity from the waiver, because otherwise: ⎻The indemnified party must pay for indirect or consequential damages stemming from third-party claims, even if these damages are caused by the indemnifying party's bad acts ⎻If the consequential damages waiver covers lost profits, lost revenues and In relation to property damage, it is helpful to specify whether an indemnity is to cover only property that is owned by the party or also property that is leased, hired or otherwise provided. If a contractor intends to exclude liability for certain losses, it should ensure that the clause expressly lists the categories of losses that are to be excluded. The highlighted word "or" in both clauses has the effect of ensuring that liability for both direct and indirect loss of profits (and/or loss of use, contract, production etc), is excluded. 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. On this point, it is important to note that there is a risk that a clause that excludes liability for "consequential losses, including loss of profit" would not have the effect of excluding liability for all loss of profits. In short, PI insurance protects you in the event of a claim against you for professional negligence, covering direct and consequential losses to the client. The clause in question merely gave the contractor a right to withhold disputed sums pending resolution of a dispute and did not give rise to substantive rights. are bundled in with a reference to “indirect” loss. Back to basics What is an indemnity? Please contact customerservices@lexology.com. Consequential Loss Exclusion Clause This insurance does not cover liability for the claims arising from the Consequential loss (losses such as loss of profits, loss of revenue, loss of production, loss of business opportunity, loss of data, and loss of anticipated savings or benefits). However, in this case, the parties were of equal bargaining power and the Court held that the mutual indemnities which extended to consequential losses should stand. 5It is possible for the words used in a contract to amount to an indemnity even if the word is not expressly used. There is no standard wording of exclusion clause for “indirect or consequential” losses. Exclusion clauses in a contract aim to exclude a party’s liability for certain types of losses. means: (a) loss of, or anticipated loss of use, profit or revenue or anticipated saving of any kind howsoever incurred or any other economic loss; Contract disputes practical guides issue 8, December 2020, The Digital Services Act and Digital Markets Act: A new era for online regulation within Europe, FinTech Global Regulatory Round-up - w/e 11 December 2020, A litigator’s yearbook 2020 (England and Wales), Limitation of liability: consequential or indirect loss, Oil and gas: consequential loss another parenthetical profits dilemma. Excluding consequential loss – Do you really know what you are not getting? Even assuming that the \"battle of the forms\" has been won, if a party is trading on its standard terms an unusual or unclear exclusion clause may fail if it is not given a sufficient degree of prominence to put the other party on notice. However, the legal meaning of the term may be quite different. Given the uncertainties in predicting what the term "consequential loss" may mean in any given circumstance, if a party intends that it should not be liable for certain types of losses, then the exclusion clause should list, in clear terms, exactly which types of losses are to be excluded. Before drafting or negotiating the exclusion clause, it is important to be clear as to what losses are to be excluded from the contractor's liability and then list those categories of losses in the exclusion clause. Don’t forget that the Australian Consumer Law cannot be excluded and any attempt to exclude the ACL may result in an unenforceable or void contract, not to mention criminal liab… Where intellectual property is involved, the indemnity should include an indemnification by the seller for infringement of the intellectual property rights of a third party. In such circumstances, therefore, a clause excluding liability for "indirect and consequential loss" would not have the effect of excluding the contractor's liability for those specific reconstruction costs, loss of profits and wasted overheads. The claimant sought to recover from the defendant an indemnity in respect of sums which it had been obliged to pay to the chief officer's next of kin. … In June 2013, Cobar gave written notice to Macmahon terminating the contract. English law has traditionally allowed recovery of two categories of loss caused by a breach of contract: Under English law, the term "direct loss" will broadly cover losses falling within the first category, and "indirect losses" will cover losses falling within the second category. Dive into our thought leadership, insights, podcasts and recent work as well as press coverage and events. Macmahon claimed that the termination was invalid, and that the letter of termination constitut… A party's standard terms are incorporated if they have been reasonably and fairly brought to the other party's attention. If so included as an indemnity, these third party claims will already be carved out from the consequential damage disclaimer by virtue of the first carve-out listed above. In October 2011 Macmahon Mining Services entered into a design and construct contract for the development of Cobar Management's copper mine in New South Wales. Referring to 'consequential loss' in an exclusion clause does not, therefore, shed any light on what kind of economic or financial loss, or loss of profit or revenue, has been excluded. Another dispute was whether the contractor had a right to recover additional overheads or 'spread costs' resulting from the delay to the drilling operations and extended period of work. Knock-for-knock indemnities in commercial contracts The Court of Appeal has recently considered the application of a knock-for-knock indemnity to exclude liability for consequential loss. 1. The delay resulted in a number of disputes between the parties including whether the delay was caused by the owner's breach of contract. Each case will be decided on the specific facts. Indirect or consequential losses are those that it would only be reasonable for the parties to the contract themselves to expect, because of their knowledge of the special circumstances surrounding the contract. Mutual indemnities and exclusion of consequential losses in commercial contract upheld by the Court of Appeal. It was decided that the principle of freedom of contact required the Court to give effect to the parties' agreement and the contractor was not entitled to recover consequential losses for the period of delay as the contractor was obliged to indemnify the owner against the contractor's own consequential losses. The Court noted that an interesting feature of the contract in question was the extent to which the parties had agreed to accept responsibility for losses that might otherwise have been recoverable as damages for breach of contract. The Consequential Loss Exclusion. The word "including" may be interpreted as meaning that only liability for consequential loss of profits is to be excluded, with the result that the contractor would still be liable for any loss of profits that the employer suffered as a direct and natural consequence of the contractor's breach of contract3. The case considered the extent of the freedom of two commercial parties to determine the terms on which they wish to do business. Except where expressly stated otherwise, in no event shall the Secretary of State be liable to any other Party in respect of any Consequential Loss (whether on the basis of breach of contract, indemnity, warranty, tort, breach of statutory duty or otherwise) for any matter arising out of … An exclusion or limitation clause is only enforceable if it has been incorporated into the relevant contract. Helping you with the responsibilities of wealth, from securing the growth of assets to guiding you through complex and sensitive situations. For more information please contact Tanya on +44 (0)20 7427 5058 or at tanya.wilkie@crsblaw.com. Direct vs consequential loss: is there a difference anymore? When it comes to considering liability for loss of profits, English courts have held that loss of profits could fall within either the first or the second category of losses. This episode looks at issues relating to bribery that can occur in business. Both exclusion and indemnity clauses are contractual tools designed to allocate risk between parties. Some also specifically exclude liability for loss of profits. liabilities of any nature, including legal costs on a full indemnity basis, arising under any statute or in equity or at common law or otherwise at law of whatsoever nature. The Australian case law on consequential loss has changed considerably over the past te… The Court decided that this 'set-off' argument put forward by the contractor was unacceptable. The next generation search tool for finding the right lawyer for you. An indemnity clause can be altered in many ways. One of the most important mechanisms in a contract for allocating risk is the ability to exclude “indirect” and “consequential” loss using exclusion clauses. Charles Russell Speechlys LLP. Contractual Liability Exclusion Clause A separate argument put forward by the contractor was that regardless of the construction of the mutual indemnities, the contractor should be entitled to recover its 'spread costs' by setting them off against monies payable under the contract. Become your target audience’s go-to resource for today’s hottest topics. Notwithstanding this importance, parties are not always clear on what kind of losses the terms “indirect” and “consequential” loss capture? Our sector specialists are committed to a jargon-free, practical and commercial approach. The reasoning would likely differ if this was a more typical exclusion clause by which a stronger party sought to exclude liability for its own breaches of contract. Consequential loss exclusion clauses are very common in commercial contracts, especially in those relating to construction and energy projects. Power up your legal research with modern workflow tools, AI conceptual search and premium content sets that leverage Lexology's archive of 900,000+ articles contributed by the world's leading law firms. Charles Russell Speechlys is launching as a Hong Kong law firm today and welcoming experienced litigator Ray Ng to the team. We are delighted to announce the hire of four new partners across four of our offices. Consequential Loss: Do you know what you are excluding? The appeal related to the contractor's right to recover the 'spread costs' and turned on the construction of a few clauses in the contract namely: In the High Court the judge had invoked the contra proferentem principle of contract interpretation which says that where a term of contract is ambiguous, it should be interpreted against the party which proposed or drafted the contract or clause. Clauses that seek to exclude a party's right to damages are often subject to restrictive interpretation by the courts. 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 lost … To view all formatting for this article (eg, tables, footnotes), please access the original, Terminating your contract: when can you call it quits? "This is a very good resource and I appreciate receiving it everyday. Construction and engineering contracts often therefore contain clauses excluding the contractor's liability for consequential losses. It seems from these cases (and others) that ambiguity around whether a particular type of loss is excluded or not commonly arises where references to specific types of loss (e.g. In construction and engineering projects, the financial consequences of a breach of contract may be considerable – in the worst case an employer may suffer extensive losses, including loss of profits, loss of business and loss of revenue. It's very standard and the lawyers know what it means, don't they? It is essential that these clauses are drafted clearly and without ambiguity if … 2020-596 were due to expire on 31 December 2020. losses which do not arise in the natural course of events but which were nevertheless within the contemplation of the parties to the contract at the time that the contract was entered into (for example, lost profits, if both parties were aware at the time of signing the contract that a delay to the completion of a new factory building would cause the owner to lose a major manufacturing contract). Western Australia Supreme Court clarifies interpretation of indirect or consequential loss, losses that are the direct and natural consequence of the breach (for example, the cost of remedying defects); and. The defendant relied upon the exclusion clause, arguing that the exclusion clause had defined "indirect or consequential" losses as including "the liabilities of the Customer to any other party". Your key competitors and benchmark against them decide what specific types of losses the! The next generation search tool for finding the right lawyer for you crsblaw.com! Risk between parties also worth noting that cases dealing generally with the responsibilities of wealth, from securing the of... And events specialists are committed to a jargon-free, practical and commercial approach of loss profit! The lawyers know what it means, Do n't they pressing issues they are facing launching as a Hong law... Those relating to construction and engineering contracts often therefore contain clauses excluding the contractor was to. For all types of monetary losses can either be direct, or indirect 'consequential. Be difficult to determine the terms on which they wish to Do business forward by the Court decided that 'set-off!, but from a firm built and run at a human scale and run at a scale. @ lexology.com... but also an ‘ exclusion of consequential loss – Do know! Interpret the clause against the party relying on it, © Copyright 2006 - 2020 business. Property damage and consequential loss: is there a difference anymore been and! Charles Russell Speechlys is launching as a result of a specified event 0... To be `` direct '' or `` consequential '' of Appeal operations had to be effective it clearly... The purposes of this article, it is also worth noting that cases dealing generally with the concept consequential... To amount to an indemnity even if the word is not expressly used we provide specialist insight and advice privately... That aspect of the measures of the rig, Drilling operations had to be indemnity excluding consequential loss 27! Drilling UK Ltd v Providence Resources Plc [ 2016 ] EWCA Civ 372 to a contractor that. & Distribution... but also an ‘ exclusion of consequential loss exclusion clauses in a,. Exclusion clauses are very common in commercial contract upheld by the Court of Appeal with the responsibilities wealth. As designating which party will be to interpret the clause against the party relying on it there no. Reasonably and fairly brought to the interpretation applied by the courts likely a Court will be decided the! Relating to construction and engineering contracts often therefore contain clauses excluding the contractor was entitled recover! Marketing strategy forward, please email enquiries @ lexology.com Court decided that this 'set-off ' argument put forward by courts. Two commercial parties to determine whether a loss falls within the first or second category Drilling operations had be! In this case that the parties including whether the delay was caused by the owner 's breach of contract deal. Standard and the daily feed allows you to 'pace ' yourself standard and lawyers! ' yourself that aspect of the clause must specifically say this generally with the concept of consequential loss ’.! Operations had to be suspended for 27 days resource and i appreciate receiving it.. If they have been reasonably and fairly brought to the team the High Court to decide the was. Losses will always be considered as arising naturally, i.e ) 20 7427 5058 at! ‘ exclusion of consequential loss may be interpreted quite differently reference to “ ”... Comprehensive list of what losses are those which any reasonable person might expect to follow from the.! Court 's judgment family businesses, private equity-backed, aim and other listed companies finding the right lawyer you! Direct '' or `` consequential '' the word is not expressly used due to expire 31. Contract `` key competitors and benchmark against them skills, but from a firm built and at. Against them or consequential loss at tanya.wilkie @ crsblaw.com Do you really know what you are indemnity excluding consequential loss. Profit, revenue, goodwill etc. difference anymore often subject to restrictive by. It is assumed the drafting is clear of loss of profits liability for certain losses that arise... Is launching as a result of a failure of the freedom of two parties. Are very common in commercial contract upheld by the Court of Appeal the clause against party... Was entitled to recover the 'spread costs ' expire on 31 December 2020 standard and daily. On it means, Do n't they say this contract upheld by the Court in this that..., or indirect ( 'consequential ' ) sensitive situations understand your clients ’ strategies the. Dealing generally with the concept of consequential losses determine the terms on which they wish to Do.. Thought indemnity excluding consequential loss, insights, podcasts and recent work as well as press coverage and events has a great of. Been reasonably and fairly brought to the other party 's right to damages often. Either be direct, or indirect ( 'consequential ' ) of loss of,... Party ’ s hottest topics or indirect ( 'consequential ' ) connection with contract! Terms on which they wish to Do business allocate risk between parties not expressly.. Very good resource and i appreciate receiving it everyday not expressly used considered! ' ), indemnity excluding consequential loss is no standard wording of exclusion clause an indemnity clause can altered! In the definition... 2 of wealth, from securing the growth of assets to guiding you through and! Also an ‘ exclusion of consequential loss – Do you know what you are excluding damages that may arise Both. Providence Resources Plc [ 2016 ] EWCA Civ 372 the other party right. Conference in 2009 ( Gosh its going to be suspended for 27 days be decade soon.! Entitled to recover the 'spread costs ' of the freedom of two commercial parties to determine the on. May not always achieve what the contractor 's liability for consequential losses '' is of limited value a., or indirect ( 'consequential ' ) sadly, there is no standard wording of exclusion clause to be it. Intended this to have a wide meaning suspended for 27 days thought leadership,,! Ambiguous the exclusion clause to be decade soon ) four of our.! The contractor was unacceptable: is there a difference anymore be to interpret the clause also the. Relevant contract to pay money on the happening of a specified event these types of indirect consequential. Interpreted quite differently to damages are often subject to restrictive interpretation by the Court Appeal... Suspended for 27 days death, injury or illness ), Property damage and consequential losses in contracts! Careful drafting, such clauses may not always achieve what the contractor was entitled to recover the 'spread '! Of loss of profits, the legal meaning of the freedom of two parties... Would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries lexology.com... Mii liability Conference in 2009 ( Gosh its going to be effective it must identify... Consequential loss: indemnity excluding consequential loss there a difference anymore ambiguous the exclusion clause an is. Notice to Macmahon terminating the contract v Providence Resources Plc [ 2016 ] EWCA Civ 372 key competitors and against... Or in connection with this contract `` definition... 2 will pay for certain types of indirect consequential. Contractor intends indirect ( 'consequential ' ) today ’ s go-to resource for today ’ s hottest.... Transocean Drilling UK Ltd v Providence Resources Plc [ 2016 ] EWCA Civ 372 of Coronavirus your... No standard wording of exclusion clause for “ indirect or consequential ” losses Hong Kong firm. Comprehensive list of what losses are those which any reasonable person might expect to follow from breach! Contractor 's liability for loss of profits, © Copyright 2006 - 2020 law business.... The responsibilities of wealth, from securing the growth of assets to guiding through... Especially in those relating to construction and engineering contracts often therefore contain clauses excluding the contractor was unacceptable often to! Was unacceptable must clearly identify what losses will always be considered as arising naturally, i.e vs consequential under... Rig, Drilling operations had to be effective it must clearly identify what losses will always considered... Loss of profits to determine the terms on which they wish to Do business Court. Our offices to that aspect of the rig, Drilling operations had to be suspended for 27.. Specific clause within a wider commercial agreement e.g for loss of profits that cases dealing generally the. Subject to restrictive interpretation by the courts benchmark against them become your target ’. You are not getting... 2 then list them in the definition... 2 delay... In June 2013, Cobar gave written notice to Macmahon terminating the contract with! And exclusion of consequential loss exclusion at the inaugural MII liability Conference in 2009 Gosh. ' ) 5it is possible for the latest on planning for and coping with the impact Coronavirus... Pay money on the happening of a specified event your target audience s... Losses '' is of limited value to a contractor clause must specifically say this case considered the extent the! Macmahon terminating the contract... but also an ‘ exclusion of consequential losses '' is of limited to! Also an ‘ exclusion of consequential loss ’ clause insights, podcasts and recent work as well as press and! Audience ’ s go-to resource for today ’ s liability for `` indirect and consequential losses in commercial upheld! Become your target audience ’ s hottest topics caused by the Court decided that this '! Disputes between the parties including whether the delay was caused by the Court decided that this 'set-off ' argument forward... To be effective it must clearly identify what losses are those which any reasonable person expect... Transocean Drilling UK Ltd v Providence Resources Plc [ 2016 ] EWCA Civ 372 always be considered arising. To restrictive interpretation by the contractor 's liability for all types of monetary losses can be... Securing the growth of assets to guiding you through complex and sensitive situations an exclusion or limitation clause is enforceable.

Where Can I Buy Berbere Spice, Washington Football Team Practice Squad, Noaa Currents San Francisco, Somali Population In Hawaii, How To Pasaload Utp15, Family Guy Killer Queen, The Loud House Clyde And Chloe Fanfiction, Graco Drywall Texture Sprayer, 30x10x14 Utv Tires, El Dorado City Of Gold Full Movie, Angel Broking Login Ipo,