Oftentimes, one would come across the term “consequential loss” in contracts. What in the world is that? For example:
a. A main contractor has entered into an agreement to lease a tower crane. The tower crane company failed to provide the tower crane, as a result the main contractor had to lease from another company at a much higher price. Is the higher price of leasing the tower crane a “consequential loss”?
b. What if there were delays in procuring a substitute tower crane leading to delays in the work, as a result of which LAD was imposed on the main contractor. Would the LAD be “consequential loss”?
A case that would illustrate the term “consequential loss” is the case of Hotel Services Ltd v Hilton International Hotels. In this case, the dispute involved the supply of Robobars (i.e. minibars in rooms that automatically records all items removed from the bar, and automatically debits the account of the guest with the said item). The Robobars supplied did not work. The claimant sued for overpaid rental of the Robobars, cost of removal and storage, and loss of profits, all of which were allowed.
At appeal, it was argued that the loss of profits would have been “consequential loss”, and the contract expressly states that there shall be no claim for any indirect or consequential losses. The Court of Appeal disagreed. In doing so, the Court of Appeal distinguished between normal losses and consequential losses. According to the Court of Appeal:
a. Normal losses would be the type which every claimant in the same situation would suffer; and
b. Consequential losses would be losses which are peculiar to the particular claimant in his particular situation, and therefore not foreseeable.
Loss of profits, therefore, would be a normal loss and not a “consequential loss” since it would be clearly foreseeable and not peculiar to the particular claimant in his particular situation.
Kheng Hoe Advocates advices developers and contractors on CIPAA, arbitration and litigation of construction disputes. For queries, contact us at email@example.com.