1 (INDEMNITIES). WHAT IS ‘INDIRECT’ OR ‘CONSEQUENTIAL’ LOSS OR DAMA...

17.1 (indemnities).

What is ‘indirect’ or ‘consequential’ loss or damage is a significant topic in

itself. It is a concept developed in the common law jurisdictions and can be

illustrated by the following example.

An employer contracts to have a house refurbished to a high specification.

She does not tell the contractor why she wants the house done up or why she

needs it to be ready by a certain date. The contractor does a bad job and causes

the work to be delayed by several weeks. The employer claims against the

contractor not only the cost of putting right his defective work but also the

rent she would have earned on the house had she been able to let it out (as she

had intended) for the period when, due to the contractor ’ s poor workman-

ship, the house could not be occupied.

In this example, the cost of the remedial works is ‘direct’ loss; the loss of

rental income for the period of delay is, however, ‘indirect’ or ‘consequential’

loss resulting from the contractor ’ s various defaults. Although the distinction

may be difficult to make in practice, in this simple example the remedial

works costs are at the date of the contract foreseeable as likely in the natural

course of events to result from the contractor ’ s shoddy workmanship or breach

of contract. However, if the employer is to recover the loss of rental income,

she must show that the contractor at the date of the contract had knowledge of

her intention to rent the house out.

Contractor ’ s total liability

Clause 17.6 also limits the total amount of the Contractor ’ s liability to the

Employer.

Except in the case of fraud, deliberate default or reckless misconduct, the

total liability of the Contractor to the Employer in connection with the con-

tract is not to exceed the sum stated in the Particular Conditions or, if no sum

is stated, the Contract Price (if Silver Book) or Accepted Contract Amount (if

Yellow).