In the recent case of McCain Foods (GB) Ltd v Eco-Tec (Europe) Ltd, the Technology and Construction Court has once again had to consider the meaning of direct and indirect loss, leading to another judgment which shows that it is dangerous for suppliers to assume that excluding "indirect loss" will protect them from large claims for financial loss.
In the case, McCain had purchased a system from Eco-Tec for removing hydrogen sulphide from biogas in order that it could be used as fuel to generate heat and electricity. The system was defective and McCain claimed damages for breach of contract including:
- £550,000 for the extra cost of buying electricity instead of being able to generate its own;
- £650,000 for the loss of revenue from the system (from selling Certificates of Renewable Energy Production);
- £350,000 for the cost of buying a replacement system;
- £100,000 for the cost of contractors and other personnel; and
- various other smaller claims for the cost of staff time to resolve the problems etc.
The Supplier accepted that the cost of replacing the system (£350,000) was a direct loss but argued that all the other losses were indirect and therefore excluded by the contract. However, the Judge ruled that all the losses were the sort of damage that arises naturally from the breach and were therefore direct and recoverable.
The judgment follows a long line of case law showing that exclusions of indirect losses do not always serve to limit liability in the way that a party might envisage. The scope of what the courts are willing to deem to be direct losses is wide and contractual parties should therefore give careful consideration to limitation of liability provisions in their contracts.
A copy of the judgment is available here.