In contracts, one or more of the parties may request that different types of damages be excluded. The exclusion wording means that the contract requires the parties to exclude the possibility of claiming certain types of damages in the event of breach of contract. The court considered whether the meaning of the term “indirect and consequential damages” had been changed by the words “including, but not limited to”. The judge ruled that the additional words did not change the meaning of the clause and did not extend the protection afforded by the clause. `The exclusion applies to `indirect or consequential damages`. The immediate and natural consequence of the fire was the destruction of the goods and the warehouse, resulting in loss of profits and business interruption damage for the claimants. Therefore, the claims in this case do not appear to fall within the scope of the exclusion. As with many legal issues in trade agreements, it depends. When you offer a service or product, it is generally good that the current contract excludes any indirect damage. If you`re the customer, it`s often best not to have such contractual language – that way, if a problem arises, you can have a much bigger stick to threaten the other. This judgment is likely to contribute to the growing debate on the correct interpretation of the exclusions of indirect and consequential damages in English law. In the meantime, parties negotiating contracts with such exclusions should be aware of the arguments made in favour of extending the traditional approach. Sony`s arguments in the present case would have considerably broadened the scope of the clause compared to the traditional approach, which is assumed not to have resulted in a single stated case where losses were effectively excluded.
It is regrettable that the Court`s reasoning in this regard is not further explained. Sony`s central argument was that 2E`s loss of profits was a consequence of the destruction of the media in the warehouse and therefore constituted “indirect damage”. The judge appears to have contradicted this argument on the grounds that the loss of profits was nevertheless caused as a direct and natural consequence of the fire. However, there is no explanation as to why losses should not be “consecutive”. After reviewing the recent judicial critique of the above-mentioned traditional approach, Justice O`Farrell accepted before the Technology and Construction Tribunal the argument that “a general interpretation of the meaning of `indirect or consequential damage` must not prevail over the true interpretation of this clause when read in the context of the other provisions of the logistics contract and the factual matrix.” However, in assessing the natural and ordinary meaning of the clause, the judge came to the same conclusion as the traditional approach: this case highlights the risk of misuse of the words “indirect and consequential damages” in an exclusion clause. It has also been established that clear language is needed to exclude other types of losses. Consequential damages are damages resulting from a particular circumstance of the case and reparable if it can reasonably be assumed that they were considered by the parties at the time of the conclusion of the contract as a probable consequence of the breach. In other words, if the non-conforming party was aware of the special situation of the other party at the time of conclusion of the contract, losses can be recovered. A contract for the supply of bespoke integrated systems between Watford and Sanderson contained a clause stipulating that there are effectively only two categories of losses for infringements: direct and indirect losses. The terms “consequential damage” and “consequential loss” mean the same thing (British Sugar Plc -v- Projects Ltd  EWCA Civ 2438).
This High Court decision follows a long body of case law showing that the exclusion of indirect losses does not always serve to limit liability as a party might imagine. There is certainly a common misconception that lost profits and other financial losses will always be indirect damages. The scope of what courts are prepared to consider to be direct losses is broad and parties should therefore carefully consider the limitation of liability provisions in their contracts. This approach is not without risks, but at the same time it provides clarity. It also gives the parties the opportunity to mitigate or spread the risk. Depending on the individual contract, it is possible that the risk can be countered by adjusting the price of the contract, by concluding insurance coverage or by simple control by one of the parties. Commercial insurance policies generally stipulate that they cover “direct losses” and “physical losses” in the event of damage caused by a disaster. Business owners should be aware of what their policies cover and what they mean.
The time limit under the Limitation Act 1980 is 6 years in the case of breach and 12 years if the contract is performed as an instrument. Contractual disputes over £100,000, including breach of contract, are handled by the Queen`s Bench Division (QBD), a division of the High Court. The QBD has its own guide, the Queen`s Bench Guide, and must be read with the CPR. “Neither party shall be liable under this Agreement for any indirect or consequential damages or damages, including (to the extent that they are only indirect or consequential), including, but not limited to, loss of profits, loss of revenue, loss of revenue, loss of revenue, loss of reputation, loss or waste of management time or personnel, or business interruption. Several decisions of the English Court of Appeal have held that contractual exclusions for “consequential and consequential damages” are limited to losses falling within the “second part” of Hadley v. Baxendale. Hadley v Baxendale is an ancient and well-known decision in English law that establishes a fundamental separation between two types of recoverable losses for breach of contract: a contract will take into account a non-binding and binding clause that defines the procedure by which the parties wish to resolve the dispute. Often, the parties include an exclusion of “consequential and consequential damages” to limit the contractor`s liability. It should be noted, however, that an exclusion or limitation of “consequential damages” in English law does not have the effect of excluding loss of profit if such loss is considered immediate. For example, wording that excludes liability for “all special, indirect and consequential damages, including loss of profits. Excludes.
could exclude liability for indirect loss of profits, but under English law it is unlikely that direct loss of profits would be excluded. Our May 2009 newsletter (“Exclusion of liability for consequential damages and loss of profit”) deals with this topic in more detail. The contract states that “in no event shall the seller be liable for any indirect, special, incidental or consequential damages.” Accordingly, the supplier argued that it was not responsible for McCain`s losses, with the exception of the cost of replacing the equipment. Indirect loss insurance, often referred to as “consequential damage” in business insurance, is not caused by the hazard itself, but describes the damage suffered as a result of or as a result of the direct damage. The most important element of an indirect exclusion clause is therefore that the plaintiff must overcome significant obstacles before it can assert a claim for consequential damages. 2 Entertain Video Ltd (“2E”) sued Sony for, inter alia, loss of profits resulting from a fire at Sony`s warehouse in Enfield. 2E has published, marketed and sold various home entertainment media such as Blu-ray discs, DVDs and CDs. At the time of the fire, which was caused by riots following the Mark Duggan shooting in 2011, around £40 million worth of shares were held by 2E. From an actuarial point of view, a loss is a depreciation of property, damage or loss of assets resulting from a risk, catastrophe or accident.