What is “consequential losses” in the legal context?

There is still no unanimous definition in the English law context for the term “consequential or indirect loss”. Exclusion clause which excludes liability for “indirect or consequential losses” followed by various types of losses, like loss of business, in parentheses, must be understood to mean that the losses named in parentheses are mere examples of indirect or consequential losses.  The use of the phrase "including but not limited to" is a strong pointer that the specified heads of loss are but examples of the excluded indirect loss.

Some recent cases:

In GB Gas Holdings Ltd (Centrica) v Accenture (UK) Ltd & ors [2010] EWCA Civ 91, GB claimed for:

·          Gas Distribution charges (in the region of) of £18,700,000

·          Compensation paid to customers: £8,000,000

·          Additional Borrowing Charges: £2,000,000

·          Cost of chasing debt not due: £387,287

·          Additional stationery and correspondence costs: £107,120

The relevant sub-clause provides that; neither party is to be liable for loss of profits or of contracts arising directly or indirectly; loss of business or of revenues arising directly or indirectly; and losses or damages to the extent that they are indirect or consequential or punitive. The court held that as none of the losses came within the second limb of Hadley v Baxendale, they were not therefore indirect and could therefore be recovered. 

In Markerstudy Insurance v Endsleigh Insurance [2010] EWHC 281 (Comm), the relevant exclusions clauses states that: “1. Neither party shall be liable to the other for any indirect or consequential loss (including but not limited to loss of goodwill, loss of business, loss of anticipated profits or savings and all other pure economic loss) arising out of or in connection with this Agreement.2. Endsleigh will not be liable to [the claimants] for any indirect or consequential loss or loss of profit or loss of business arising out of data input errors by Endsleigh put into Policy Schedules, Certificates of Insurance or Endorsements.”

It was held that both clauses only exclude indirect and consequential losses only and defendants was liable for direct loss of goodwill, business, anticipated profits.

In Kudos Catering v Manchester Central 2013 EWCA 38, Defendants who had repudiated a contract sought to rely on an exclusion clause to exclude a claim for loss of profit. Held: where the meaning of the exclusion clause appear to be clear but were capable of two different meaning, the court may still construe it in the context of the entire contract to accord with business common sense. The Court of Appeal went on to hold that loss of profits due to repudiatory breach by MCCC to perform the contract, were not excluded.

Though the term “consequential or indirect losses” is somewhat equated to the second limb of the rule in Hadley v Baxendale, the courts, when construing such clauses will still consider the facts of each case, the wordings and the context in which it is used. Even when the meaning of the words in an exclusion clause is clear, the courts may still consider it in a wider context to obtain a fair outcome.