Peter Lamont - Solicitor
The importance of exclusion clauses as they relate to "consequential loss" has been reinforced by the recent decision of the Victorian Court of Appeal in Environmental Systems Pty Ltd -v- Peerless Holdings Pty Ltd [2008] VSCA 26. The question for organisations to consider is whether or not existing contractual frameworks adequately define consequential loss.
The facts
Environmental Systems entered into a contract with Peerless Holdings to provide Peerless with a regenerative thermal oxidiser (RTO). The RTO did not perform as specified under the agreement and Peerless had to obtain a replacement.
Peerless brought proceedings against Environmental Systems for the following:
1. breach of contract;
2. breach of the Trade Practices Act 1974 (Cth); and
3. breach of the Fair Trading Act 1985 (Vic).
Importantly, the contract between the parties had an exclusion clause relating to "liquidated damages" and "consequential loss". It read as follows:
"As a matter of policy, Environmental Systems does not accept liquidated damages or consequential loss."
Outcome
Significantly, consequential loss was not defined in the contract and so the court determined the meaning of the term. The results were as follows:
1. "consequential loss" was held to mean all the loss beyond the normal measure of damages and the 'normal' measure of damage is the loss that every plaintiff in a like situation will suffer;
2. "consequential loss" will include lost profit and expenses incurred as a result of the breach of contract; and
3. any party wishing to exclude certain types of losses needs to specifically identify those losses in the exclusion clause.
The consequence of this determination is that clauses that exclude liability for "consequential loss" may additionally exclude loss of anticipated profits and other expenses incurred as a result of the breach. Formerly this was not necessarily the case. Obviously this will now be beneficial to some parties to various contractual arrangements
Hopgood Ganim recommendations:
1. Conduct an analysis of your exclusion clauses to ensure that their operation is not affected by the recent developments of Environmental Systems Pty Ltd -v- Peerless Holdings Pty Ltd.
2. Define terms such as "consequential loss" within your existing contractual arrangements so that there is certainty as to the types of loss that should be excluded.
The Building and Construction team at Hopgood Ganim will be offering workshops on the Building and Construction Industry Payments Act. These workshops will be approximately two hours in length and can be held onsite or at the Hopgood Ganim offices. These workshops will start with a brief paper on identifying issues to be aware of throughout the management of the claims process under the act and conclude with a hands on workshop talking through scenarios that may arise during the process.
These workshops are designed to be a practical hands on experience and are suitable for anyone from project managers through to office staff and senior management.
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