Lloyd's Maritime and Commercial Law Quarterly
EXCLUDING LIABILITY FOR LOSS OF PROFIT
BHP Petroleum
v. British Steel
BHP Petroleum Ltd
v. British Steel Plc
1
shows that, at the level of the High Court and the Court of Appeal, in a contract between A and B a term excluding, in the event of a breach by A, his liability for “indirect or consequential” losses incurred by B is currently read in a somewhat unexpected way: it excludes liability only for those losses as are recoverable by B under the second branch of Hadley
v. Baxendale,
2
and it does not exclude liability for a loss of profit suffered by B.
In describing the development of this principle, Rix, J., referred3
to four Court of Appeal decisions: Millar’s Machinery Co. Ltd
v. David Way & Son,
4
Croudace Construction Ltd
v. Cawood’s Concrete Products Ltd,
5
British Sugar
v. NEI,
6
and Deepak Fertilisers and Petrochemicals
v. ICI
.7
In the face of this line of authority,8
Rix, J., felt obliged to adopt the Hadley
v. Baxendale
interpretation, although he said9
that he found it “conceptually difficult”. He also thought it very difficult to apply in practice:10
In the ordinary case where damages are in issue, it usually does not matter whether the knowledge is of special circumstances or not: where the knowledge is possessed, the damages will be awarded, and there is no need to determine whether the award is under the first or second limb of the rule…. What, however, is to happen when the Hadley
v. Baxendale
rule is used as the critical test of what are “consequential losses” for the purposes of an exclusion in those terms? …How does one tell the difference between losses which are within the first limb, and other losses which are only within the contemplation of the parties because of special knowledge within the second limb?
This Comment will suggest that this line of authority is open to question, although whether it can be overruled below the House of Lords is uncertain.11
The reasons for
2. (1854) 9 Exch. 341; 156 E.R. 145; [1843–1860] All E.R. Rep. 461.
4. (1935) 40 Com. Cas. 204.
8. See also Halsbury’s Laws of England,
4th edn reissue, vol. 12(1) (1998), para. 1021.
9. [1999] 2 Lloyd’s Rep. 583, 598.
10. Ibid.,
599.
11. See Lord Donaldson, M.R.’s observations in Richards
v. Richards
[1990] Fam. 194, 203 about the “rare and exceptional cases” in which the Court of Appeal can overrule its previous decisions. However, the possibility that BHP Petroleum
v. British Steel
might go to the House of Lords on this point is not entirely theoretical because, on one view of the case, the plaintiff s entitlement to damages of £136 million might depend on the point.
CASE AND COMMENT
21