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In addition, it is not possible to exclude certain liabilities, for example, for fraud or negligently caused death or personal injury, and certain implied statutory warranties provided to protect consumers.

There is a natural inclination in contracts to try to keep the length of the terms and conditions and/or terms of the agreement to a bare minimum.  In light of this approach it does mean that clauses become condensed and generic wording is utilised to cover a number of different scenarios. 

 The recent cases of GB Gas Holdings (referred to as "Centrica") v Accenture [2010] (the "Centrica case") and McCain Foods (GB) Ltd v Eco-Tec (Europe) Ltd [2011] (the "McCain case") act as useful reminders about how the Courts may interpret such attempts to limit liability in this way.

 Executive summary of the main commercial points arising out of the above cases

 ?  An exclusion of liability for "indirect or consequential loss" may not exclude loss of profit or revenue where such losses are considered to be a "direct loss" or "in the contemplation of the parties" when they entered into the contract.

 ?  It is important to ensure any provisions seeking to exclude or limit liability are as reasonable as possible, including making any global cap on liability a sensible amount taking into account the ability to insure against the loss in question.

 ?  It is advisable to structure any clauses limiting or excluding liability as a series of sub-clauses to allow any provisions the Courts do not consider to be reasonable to be severed without affecting the remaining provisions.

 ?  Insurance for losses that the Company may suffer as a result of claims against it should be regularly reviewed to ensure it is adequate in nature and provides the necessary level of cover as, given the hard line approach taken by the Courts in construing clauses limiting liability, however well drafted, it may not be watertight.

 ?  Revisit any standard terms and conditions of business regularly so as to keep them up to date.

 The Traditional Position

 The landmark case of Hadley v Baxendale [1854] set down two basic rules for determining the scope of damages (loss suffered) arising from a breach of contract. The first limb of loss was directly foreseeable loss, or as a natural result of a breach, and the second limb of loss was indirect or consequential loss.  Whilst most parties accept that as a general rule it would not be reasonable to exclude directly foreseeable loss or loss as a natural result of a breach, it is common to seek to exclude "indirect and consequential loss".

 The Centrica Case

 In the Centrica case, Centrica had engaged Accenture to design, supply, install and maintain a new IT billing system.  However, the new billing system suffered considerable delays and was alleged to have a substantial number of defects.  The end result was that Centrica claimed multi-million pound losses against Accenture. The type of loss included, amongst others, distribution charges which were not properly charged for; compensation paid to customers to reflect the billing difficulties and poor customer service; borrowing charges due to late billing or non-billing of customers; and other sums incurred in chasing debts, additional stationery and correspondence costs.

Accenture had sought to limit its liability in its contract with Centrica and in particular had excluded liability for "direct or indirect loss of profits or of contracts and direct or indirect loss of business or of revenues".  Accenture argued that a large proportion of the losses claimed by Centrica related to these two exclusions.  The Court decided (in favor of Centrica) that all of the heads, which appeared on the face of it to be "indirect" or "consequential" losses, were directly foreseeable loss and not indirect or consequential loss or loss of profits.

 The McCain Case

 The McCain case concerned a contract to supply and install a gas extraction system. The Court held that, notwithstanding an exclusion of liability provision for "indirect, special, incidental or consequential loss", when the gas extraction fundamentally failed it was a direct loss of profit and not an indirect, special, incidental or consequential loss.

 Conclusion

 The above cases provide a useful warning that simply including a provision that excludes indirect and consequential loss and loss of profits and the like may now not work in the manner intended.  Clear drafting needs to be included to ensure that any specific types of loss, which are intended to come under the heading of indirect or consequential loss, are expressly excluded if it is to have the best chance of succeeding in excluding liability and any global cap on liability must be reasonable under the circumstances. 

 It is hoped that the above is useful but if any further information on this topic is required, please do not hesitate to contact your usual representative at Over Taylor Biggs.

This briefing note is not intended to be a comprehensive guide and does not cover every aspect of the subject matter and is not intended to provide definitive legal or other advice.