The UK High Court in Star Polaris LLC v HHIC-Phil Inc  EWHC 2941 (Comm) considered the meaning of 'consequential or special losses, damages or expenses' in a shipbuilding contract, after an Arbitration Tribunal concluded the phrase was not aligned with the second limb of Hadley v Baxendale.
The claimants were purchasers of the vessel Star Polaris, which was built and delivered under a variant of a standard form contract. The vessel suffered serious engine failure and was towed to South Korea for repairs. The defendant shipbuilder denied all liability and the matter was submitted to arbitration. The claimants were successful in their claim for the cost of repairs, but were unable to claim for diminution in value of the ship during repairs. The Tribunal considered this loss to be 'consequential' in the cause and effect sense, and therefore excluded under the contract.
The claimants appealed, arguing that 'consequential loss' should be interpreted in the Hadley v Baxendale sense, as they had contracted with this established meaning in mind.
The High Court agreed with the Tribunal that, despite the judicial history of 'consequential loss', the relevant clause must be approached on its particular wording. Unless the same clause had been subject to the courts' consideration before, then the Court is not bound by any particular interpretation. Of importance was the fact that the relevant Article IX provided a complete code for determining liability between the parties. The construction of the Article showed that the defendants had guaranteed to repair defective items, with all other financial consequences falling on the buyer.
The decision indicates the Hadley v Baxendale approach is secondary to the wording and construction chosen by the parties.
See the Court's decision here.