Consequential loss

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Consequential loss, sometimes called relational economic loss arising as a result of breach of contract that was not a direct consequence of a result of failure by one party to perform the contract. Subject to usual rules regarding foreseeability, causation and remoteness of damage, consequential loss is generally seen as unlikely to be recoverable in an ordinary action for breach of contract, at least in the absence of an indemnity.

Example

Where a party to a contract for the sale and purchase of a taxi has breached the contract for failing to deliver the car: Direct loss: is the value of the taxi not delivered. Consequential loss: is the loss of profit on a taxi fares the purchaser could have earned had it received delivery of the car.

Remoteness of Damage

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.

See Also