'Consequential Loss: It's all in the definition'

Friday October 17, 2014

The below article from 23 May 2014 has been provided by Scott Alden, Partner and Philippa Hinton, Solicitor, DLA Piper.


Recent Historical Context

Until recently (Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26) it was generally accepted by parties to contracts, and the courts in Australia, that the term 'consequential loss' meant those losses falling under the econd limb of losses described in Hadley v Baxendale ((1854) 9 Exch 341, [354]) and which Lord Alderson B categorised as Indirect Loss (or subjectively foreseeable loss).


These Indirect Losses were held to be losses which are not a direct consequence of the breach, and were therefore not fairly and reasonably considered as "arising naturally" or "in the usual course of things", from the breach itself.  As such, "consequential loss" was not found to encompass damages for loss of profits or expenses incurred to remedy a breach of contract as these were considered outside of that definition. 


In Peerless, the Victorian Court of Appeal departed from previous English authorities and, in so doing, narrowed the ability of parties to recover certain types of damages under a contract excluding liability for "consequential loss".  

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