" Neither party will be liable for any indirect or consequential loss under or in connection with this contract ". The law in Australia had appeared to be following a similar path, ... a number of more recent Australian decisions in relation to the interpretation of so called 'Consequential Loss' exclusion clauses that have dramatically altered the legal landscape in this country. It indicates a broadening of the court's interpretation of clauses excluding liability for 'consequential loss' by looking outside the definition of indirect losses falling within Hadley v Baxendale. Our platform allows you and your business to get simple and smart legal protections. 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. Australia’s Position Until recently, the judgement in Hadley v Baxendale provided the definition for consequential loss in Australian contract law. losses which fall under the second limb of Hadley -v- Baxendale (1854) 9 Ex. Jenelle is a legal Intern at Lawpath as part of the Content Team. Recent decisions in England, Australia and New Zealand highlight the uncertainty surrounding the interpretation and application of exclusion clauses that use 'catch-all' language such as 'consequential' or 'indirect' loss. Read our guide on the questions you should ask before you hire. No universal meaning of consequential loss . It must also not be too specific in order to properly protect a party in case an exclusion clause can’t reasonably cover the loss incurred. It's very standard and the lawyers know what it means, don't they? Recent decisions in England, Australia and New Zealand highlight the uncertainty surrounding the interpretation and application of exclusion clauses that use 'catch-all' language such as 'consequential' or 'indirect' loss. Types of clauses that are likely to be found to be in breach of the regime are clauses that impose complete or unlimited liability on the small business or completely indemnify the other party for property damage or financial loss caused (or contributed to) by the other party, including as a result of negligence, willful acts, fraud or breach of contract. Share and print this article. 9.5 Use and disclosure of personal information, 9.6 Breach of the Australian Privacy Principles, 10.4 More information on the Australian Consumer Law, 11.1 Introduction to merger control in Australia. Consequential loss exclusion clauses are very common in commercial contracts, especially in those relating to construction and energy projects. 11.5 A step-by-step guide to informal clearance, What to do if you receive an ACCC search warrant (a Dawn Raid). A time bar clause limits the time within which you can enforce certain contractual … The rather unsavoury alternative is for the parties to leave it to the courts to divine the … “consequential” in exclusion of liability clauses, both terms are commonly used in this context. The WA Supreme Court rejected both constructions of the meaning of consequential loss. some areas, such as the meaning of ‘consequential loss’ in exclusion clauses, the judgments indicate a difference in approach. What would an exclusion of consequential loss in a contract exclude? However, when a party to a contract breaches the contract, causing a loss, it may find itself liable to the other party. These terms are to be given their natural and ordinary meaning, interpreted in the context of the contract as a whole. "Indirect" and "consequential" losses are widely accepted as the same thing, i.e. Therefore the clause did not avoid liability for this loss, despite the express attempt to exclude third party liability in sub-clause(vi). The Buyer subsequently indicated that it intended to amend its claim to include a claim for diminution in the value of the vessel by reason of the defects. This first instance case was decided despite Court of Appeal authority on the meaning of exclusions for “consequential loss”. They usually take a similar form to the following, which is from clause 17.6 of the FIDIC Red Book: Exclusion clause trumps $67m consequential loss claim . It is also worth noting that cases dealing generally with the concept of consequential loss may be interpreted quite differently. Learn what a Heads of Agreement is, its usage, its inclusions and its authority. Neither party is liable for indirect or consequential loss (where “indirect and consequential loss” means the type of loss described in what is commonly referred to as the “second limb” of Hadley v Baxendale (1854) 9 Exch 341, and does not have the meaning given in the decision in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26 (or any similar line of authority in Australia)). simple legal protection, 2/23 Foster Street, Surry Hills, NSW 2010 Australia. The phrase “consequential loss” is very commonly used in exclusion and limitation of liability clauses. 1.2 Boilerplate assignment and novation clauses, 1.4 More information on assignment and novation, 3.5 More information on dispute resolution. There was a dispute over whether the exclusion clause protected the company against liability for those losses. Common law also settles that contract terms are given their ‘natural and ordinary meaning’. Exclusion of Consequential Loss. Case law has established the traditional interpretation of the meaning of “consequential loss” in exclusion clauses. The phrase “consequential loss” is very commonly used in exclusion and limitation of liability clauses. Introduction. 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. A normal loss for the business could be lost revenue from the person receiving the package. Despite any other provision of this Lease, both Parties exclude, (and agree that they will have no rights against the other for) liability for consequential or indirect loss arising out of this Lease including (without limitation) in respect of loss of profits or loss of business.This clause does not apply in respect of wilful acts by either Party. When drafting exclusion clauses it is best to specify which types of loss are excluded. 204), the term (and common variants or combinations of it, e.g. If the clause had been reworded to either delete these words or place them at the end of the clause, it would have had a much stronger and wider meaning. The Center for Law and Economic Studies Columbia University School of Law 435 West 116. th. Australian courts have emphasised that parties should define the consequential loss they seek to exclude in specific terms. Interpreting indirect and consequential loss exclusion clauses The traditional approach taken by the English courts is that indirect and consequential loss exclusion clauses will be limited to those losses which fall within the second limb of Hadley v Baxendale, a well-known case which distinguishes between two types of recoverable loss: loss, but the approach to the meaning of consequential loss in exclusion clauses varies. Street New York, NY 10027-7201 (212) 854-3739 . The success of such a claim will depend on the facts surrounding the case. The law on the meaning of the term ‘consequential loss’ is currently unsettled in Australia. They are probable consequences or losses contemplated by the parties at contract formation. 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. Historically, UK courts have held that an exclusion for ‘consequential’ or ‘indirect’ or ‘special’ losses has a relatively well-established meaning and excludes only those losses which arise under the second limb of Hadley v Baxendale, being those losses arising from special circumstances communicated by the purchaser to the seller prior to execution of the definitive agreements. It is clear from the Australian case law that concepts of “direct”, “indirect” and “consequential” loss do not have fixed and settled legal meanings. An exclusion or limitation clause is only enforceable if it has been incorporated into the relevant contract. As a further step, they go on to put the words into the context of what the parties intended by the words used. Later, in the case of Regional Power Corp v Pacific Hydro Group Two Pty Ltd (No.2) [2013] WASC 356, the Supreme Court of Western Australia said that a clause excluding consequential loss should be interpreted by looking at the contract as a whole. Payment of damages for consequential loss doesn’t necessarily have to happen. You've probably seen this type of "exclusion clause" hundreds of times in ICT and other commercial contracts and not thought much of it. It is common for construction contracts to limit indemnities to direct loss (and to exclude consequential loss) and for exclusion clauses to seek to limit or exclude liability for consequential or indirect loss. It was the loss that a party suffered on account of breach of contract that was reasonably contemplated by the parties when they made their agreement. It is vital that what is in the contract is clearly stated and intended by both parties. Concluding remarks and the case for specifying losses in exclusion clauses. 9.3 What types of data are protected by the Privacy Act? Search, compare and hire from Australia's largest lawyer marketplace, Read our free legal and business articles to get all the information you need, We've helped 130,000 Australians get smart and Looking to avoid paying damages for a breach of contract? Find out what consequential losses are and why they are important in protecting your business. What is the intersection of data with Privacy law? In truth, while the terms 'indirect loss' and 'consequential loss' probably mean the same thing, there is a great deal of uncertainty about what they do mean and no well-understood and easily-applied test. It is common to see clauses which accept liability for limited types of loss or damage but which attempt to exclude or restrict liability for "indirect", "consequential" and/or "economic" loss. Share. This leaves a fair amount of uncertainty as to what will be captured by an exclusion clause that uses these terms. All jurisdictions recognise a form of “direct” 2 Although meanings attributed to the word ‘direct’ vary. Consider how the consequential loss exclusion impacts or interacts with other clauses of the contract, in particular indemnities or warranties. Read about what a tenanted property is here. 4. It may be interpreted much broader or much narrower than intended. To protect itself from lawsuits, business’ try to avoid causing losses. 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. When purchasing property, you may come across the perfect place but it may already be tenanted. Damages is the monetary compensation to the party who has suffered loss or damage as a result of the breach. It is convenient to start with Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] 19 VR 358; [2008] VSCA 26. It is essential that these clauses are drafted clearly and without ambiguity if they are to be effective. 11.2 Should I notify my transaction in Australia? Consider how the consequential loss exclusion impacts or interacts with other clauses of the contract, in particular indemnities or warranties. An alternative method is to state the particular test that it is intended apply to the contract, including for example the common law position under Hadley v Baxendale. Exclusion clauses in a contract aim to exclude a party’s liability for certain types of losses. Australian common law has established that excluding liability for consequential loss must not be too broad. 4.4 Privilege issues when responding to subpoenas, 5.1 How to respond to a subpoena to produce, 5.2 Loss or expense of compliance with a subpoena to produce, 5.3 Privilege issues when responding to subpoenas, 5.4 Confidentiality issues when responding to subpoenas, 7.1 Assignment, novation and other dealings, 7.17 More information on boilerplate clauses, 8.2 Key similarities and differences between guarantees and indemnities, 8.3 Key differences between deeds and agreements, 8.6 More information on execution of documents. Power station inoperative for two months following outage and flooding When courts interpret the natural and ordinary meaning of words, they look at what the words expressly written in the contract means. 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