INDIRECT AND CONSEQUENTIAL LOSSES AGAIN

Caledonia North Sea Ltd v British Telecommunications plc [2002] UKHL 4 (unreported, 7 February 2002)

On a number of occasions recently, we have considered the meaning of the words ‘indirect or consequential loss’ in contract documents, most commonly in the context of exclusion clauses. A number of Court of Appeal cases (such as Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] BLR 235, on which see our July 2000 issue, pp.1–4) establish that the line between direct and indirect or consequential losses is to be drawn along the boundary between the first and second limbs of the rule in Hadley v Baxendale (1854) 9 Exch 341. If the loss is such as may fairly and reasonably be considered as arising naturally from the breach of contract, it is a direct loss. On the other hand, where the loss does not flow naturally from the breach but is such as may reasonably be supposed to have been in the contemplation of both parties at the time of entry into the contract, it is an indirect or consequential loss. However, the authority of these cases has recently been thrown into doubt by an obiter remark of Lord Hoffmann in the House of Lords in Caledonia North Sea Ltd v British Telecommunications plc [2002] UKHL 4 (unreported, 7 February 2002).