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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 in entering a contract which you then breached.
+{{a|contract|{{subtable|{{small|80}}{{loss v damages}}</div>}}}}''Not to be confused with [[direct loss]]''
-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]].
+[[Consequential loss]], sometimes called [[indirect loss]], [[relational economic loss]], is a loss arising from a [[breach of contract]] not caused ''directly'' by the breach, but as a second-order consequence of it: such as the [[opportunity cost]] to the innocent party of having a {{t|contract}} with you which you did not then perform.
-In the old days, there was some authority that [[consequential loss]] was not recoverable at all, unless specifically agreed.
+It is ''not'' the same as a [[loss of opportunity]] or [[loss of profits]]: these may be direct losses or indirect losses, depending on the contract (see {{casenote|Hadley|Baxendale}}). Let us take an example:
+{{quote|Under a contract Peggy agreed to rent Buddy her car for the weekend. Buddy took the car but failed to pay the agreed rental. As this is a [[breach of contract]], Peggy, ah, sued.<ref>I know, I know: laborious set-up; disappointing pay-off. It doesn’t matter anymore.</ref>
-===Example - buying a car===
+'''[[Direct loss]]''': Peggy’s direct loss is the rental income Buddy was supposed to pay  for the rental period. It is predictable, finite, determinate and easy for the parties to hold in contemplation. “If I can’t go through with this the worst I can be stuck with is the cost of renting that car for a week”.
-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.
-*'''[[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: 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]]''': Had Peggy not committed to rent her my car to Buddy, she could have rented it to someone else ''for more money''. Her “consequential loss” was the extra income she could have earned doing that. Also, she could have used the car herself, and earned money as, I don’t know — a limo driver.
-[[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.
+This is generally harder to get your head around: almost everything about it is speculative, including what she was planning to do with the car in the first place. And generally she herself could have rented an car elsewhere (at exactly, or less than, her [[direct loss]]) and then used it in any of the ways she is now complaining about, to earn that money and mitigate her ''consequential'' loss. Cars being somewhat fungible, her lost opportunity is not ''really'' caused by Buddy. All he is responsible for is the amount he actually agreed to pay.}}
-===Example - [[stock lending]]===
+In the old days, there was some authority that [[consequential loss]] was not recoverable at all, unless specifically in the contemplation of the parties — that authority is {{casenote|Hadley|Baxendale}}.
-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]]===
+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 are unlikely to be recoverable in an ordinary action for [[breach of contract]], at least in the absence of an [[indemnity]].
-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]]===
+In the financial markets we generally assume there is a liquid market for most financial instruments, or at any rate all of their components, and all one needs to enter into those instruments is ''funding''. If you committed your own funds to Party X, a rogue, then you can satisfy your seller’s remorse by borrowing back those funds from another lender, and applying your borrowed funds to make the investment you are now claiming to have forsaken. The loss you have incurred, therefore, is not the fabulous return you would have made on that investment, but the cost of borrowing you would have incurred in making it.
-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.
+===[[Indemnities]]===
+Pay particular attention to [[indemnities]]. Unless [[Well-crafted indemnity|well-crafted]] — and most are not — [[indemnities]] are oddly susceptible to [[consequential loss]] bother, because they do not depend on a [[breach of contract]] for payment, and so the usual rules of [[remoteness]] and [[foreseeability]] do not apply. Courts are likely to treat ''badly'' constructed [[indemnities]] rather like contractual breaches,<ref>But might not — so why take that risk?</ref> but where an [[indemnity]] is very wide (as many are) it is not controversial to exclude consequential and indirect losses from its scope. If your counterparty baulks at this, she’s either a bit of a dick or — more likely — she doesn’t really understand [[indemnities]]. (Many lawyers don’t.)
-Explicitly seeking indemnification for [[damages]] that ''may'' not be covered by ordinary remoteness principles risks creating an argument, where before there was none, and winding up in a worse position that you otherwise would be. “Consequential” losses ''may'' be recoverable in contract as long as they are reasonably foreseeable and in contemplation of the parties, which may well be true in the case of hedging losses and the like. But if you specifically seek to include consequential losses, the Skinnerian reponse of most lawyers is to reject it out of hand. If you sought an indemnity just for ordinary contractual losses, you might be able to include sufficiently foreseeable consequential losses.
+In any case, trying to recover [[consequential losses]] for [[breach of contract]] through sneaky [[indemnities]] is dick behaviour, basically, and another reason never to agree indemnities for [[breach of contract]].
-===See Also===
+''There is more — much more — on this topic at the [[indemnities]] article.''
-{{casenote|Hadley|Baxendale}}
+===When [[consequential losses]] ''are'' [[Foreseeability|foreseeable]]: [[stock lending]]===
+Sometimes [[consequential losses]] ''are'' within the parties’ reasonable contemplation, 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.
+===When [[consequential losses]] is alls you got: [[confidentiality agreement]]s===
+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 under a [[confi]] at any rate.</ref> at all, they are all likely to [[Consequential loss|consequential]] and speculative in nature.
+The chap who had your client list and used it to win the business you aspired to win yourself has, at worst, caused you a [[consequential loss]]: the [[loss of profits]] from that business. But more likely, {{sex|he}} has not “caused” your [[loss]] at all: ''you'' have, through your crappy product. Look, I’m just the messenger, okay?<br>
+{{sa}}
+*{{casenote|Hadley|Baxendale}}
 *[[Indemnity]]
 *[[Breach of contract]]