Polypearl Limited v E.ON Energy Solutions Limited

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In Polypearl Limited v E.ON Energy Solutions Limited [2014] EWHC 3045 Polypearl entered a contract with E.ON under which E.On had to buy 153,000m³ of cavity wall adhesive. Don’t laugh — this is someone’s livelihood. E.ON failed to purchase it, and as a result Polypearl suffered a loss of profit on the actual sale of those contracts of over two million quid (essentially its revenue less costs of production). Polypearl also claimed a loss of opportunity to share in carbon savings it would have made had the contract been performed.

E.On claimed exclusion for liability for “any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profit, loss of business, depletion of goodwill and like loss) howsoever caused (including as a result of negligence)”

The Judge found this a good example of a loss of profit that was a direct loss, and that this liability was not therefore excluded by that exclusion. Sensible outcome reached.

The starting point is that, as a matter of general law, a claim for loss of profits may be either a direct or an indirect loss. It will be a direct loss if, at the time the contract was entered into, it was likely to result from the breach in question. It will be indirect if there are special circumstances known to the contract breaker at the time of the contract such that a breach would be liable to cause more loss. Mr Preston QC submits that the loss of profits claim in this case is a direct loss. He submits that the most obvious (and likely) loss from the breach of an obligation to purchase Product is loss of profit. I agree with that submission though it would be possible to conceive of other claims of loss of profit arising from other breaches which would be categorised as indirect.

But does the reference in clause 10.1 exclusion of liability for indirect losses including loss of profit capture this loss of profit, which is a direct loss?

No. That would require the count to deem a claim for direct loss of profits to be a claim for indirect loss profits.The words in parenthesis and subordinate to the phrase “indirect or consequential loss": an explanation of it and not an attempt to place a direct loss in the indirect category. This construction is more consistent with business common sense since the most likely (and often the only) damage a plaintiff would suffer from a failure to order would be a loss of profits from that order. It is unlikely a merchant would wish to exclude this direct loss.

See also

• Consequential loss
• Remoteness of damage
• Hadley v Baxendale