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Consequential loss, sometimes called [[indirect loss]], [[relational economic loss]], [[loss of opportunity]] or [[loss of profits]] is a loss claimed to arise as a result of breach of contract that did not arise ''directly'' out of the failure by one party to perform the contract, but is better looked at as the opportunity cost suffered by the innocent person | {{g}}[[Consequential loss]], sometimes called [[indirect loss]], [[relational economic loss]], [[loss of opportunity]] or [[loss of profits]] is a loss claimed to arise as a result of breach of contract that did not arise ''directly'' out of the failure by one party to perform the contract, but is better looked at as the opportunity cost suffered by the innocent person in entering a contract which you then breached. | ||
These days, the extent of [[damages]] are guided generally by the usual rules regarding foreseeability, [[causation]] and [[remoteness of damage]], but in most cases, [[consequential loss]] will fail these tests—especially foreseeability—and unlikely to be recoverable in an ordinary action for [[breach of contract]], at least in the absence of an [[indemnity]]. | |||
In the old days, there was some authority that [[consequential loss]] was not recoverable at all, unless specifically agreed. | |||
===Example - buying a car=== | ===Example - buying a car=== | ||
Where a party to a contract for the sale and purchase of a car has breached the {{tag|contract}} by failing to deliver the car: | Where a party to a contract for the sale and purchase of a car has breached the {{tag|contract}} by failing to deliver the car: | ||
'''[[Direct loss]]''': is the value of the undelivered car. | *'''[[Direct loss]]''': is the value of the undelivered car. | ||
'''Consequential loss''': is the loss of profit the purchaser could have earned by using the car had it been delivered on time. | *'''[[Consequential loss]]''': is the loss of the profit the purchaser could have earned by using the car had it been delivered on time. | ||
The value of the [[direct loss]] is easy enough to assess: | The value of the [[direct loss]] is easy enough to assess: it’s the prevailing market value of a new car. It is also predictable, finite, determinate and easy for a contracting party to hold in contemplation. “If I can’t go through with this the worst I can be stuck with is the value of a new car. They currently retail at £25 grand.” You might get a fright if Volkswagen suddenly puts its prices up, but it isn’t going to kill you. The cost to the innocent party of mitigating its consequential loss is also, and necessarily, capped at exactly the value of that direct loss: it can buy, or rent, a car from someone else. | ||
[[Consequential loss]], on the other hand, is generally harder to get your head around. | [[Consequential loss]], on the other hand, is generally harder to get your head around. “Well, I was planning to be a free-lance limousine driver, and I was going to worked non-stop, twenty four hours a day for a month, only driving punters who were paying me £20 pounds a mile”. Almost everything about this involves some kind of speculation, including what the plaintiff was planning to do with the car in the first place. The plaintiff could have acquired a car elsewhere (at exactly, or less than, its direct loss) and mitigated its ''consequential'' loss entirely without bothering the defendant. | ||
===Example - [[stock lending]]=== | ===Example - [[stock lending]]=== | ||
On the other hand sometimes consequential losses ''are'' within the | On the other hand, sometimes consequential losses ''are'' within the parties’ reasonable contemplation, they are easy enough to calculate, and it is fair enough to include them. Such as, upon a failure to settle a [[stock loan]]. The failure to make the onward delivery might incur a {{gmslaprov|buy-in}} cost from the onward recipient. | ||
===Example - the [[confidentiality agreement]]=== | |||
The accursed [[NDA]] where, if you can really claim [[contractual damages]]<ref>[[Damages]] arising from misuse of [[intellectual property]] aren’t at their core, [[contractual damages]], because [[intellectual property]] rights don’t arise by {{tag|contract}} — well, not a [[confi]] at any rate.</ref> at all, they are likely to be all of a consequential and highly speculative nature. The fellow who had your client list and used it to win business from your clients you aspired to win yourself has at worst caused you a consequential loss: the loss of profits from that business. But more likely {{sex|she}} has not caused your [[loss]] at all: ''you'' have, through your inferior product. <br> | |||
===[[Remoteness of damage]]=== | ===[[Remoteness of damage]]=== | ||
It is sometimes, erroneously, said that [[consequential loss]] is not recoverable under ordinary [[contractual damages]] principles. The test of | It is sometimes, erroneously, said that [[consequential loss]] is not recoverable under ordinary [[contractual damages]] principles. The test of “[[remoteness of damage]]” is “[[foreseeability]]”—or “what was in the reasonable contemplation of the parties”. Now it is true that in many cases [[consequential loss]] is ''not'' in the reasonable contemplation of the parties. But this is not necessarily so: sometimes it is, as the example above points up quite nicely: | ||
In this case it would be clearly contemplated that the failure to deliver the taxi would lead to a loss of income, and provided that loss could be sensibly quantified (a different question) it would quite conceivably be covered. | In this case it would be clearly contemplated that the failure to deliver the taxi would lead to a loss of income, and provided that loss could be sensibly quantified (a different question) it would quite conceivably be covered. | ||
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===See Also=== | ===See Also=== | ||
{{casenote|Hadley|Baxendale}} | |||
*[[Indemnity]] | *[[Indemnity]] | ||
*[[Breach of contract]] | *[[Breach of contract]] | ||
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{{c2|Contract|Damages}} | {{c2|Contract|Damages}} | ||
{{ref}} | |||