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ARTICLE · 06 MARCH 2008

A Fundamental Change In The Law Concerning ´Consequential Loss

Minter Ellison
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The Victorian Court of Appeal has recently handed down a decision which overturns the traditional thinking concerning the meaning of the phrase 'consequential loss' in contracts. This decision should cause all parties to revisit contracts which contain clauses excluding 'consequential loss'.

AustraliaReal Estate and Construction
Peter Wood
Peter Wood

The Victorian Court of Appeal has recently handed down a decision which overturns the traditional thinking concerning the meaning of the phrase 'consequential loss' in contracts. This decision should cause all parties to revisit contracts which contain clauses excluding 'consequential loss'.

Previous legal position

Prior to the unanimous decision in the Victorian case of Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26, Australian courts have followed a line of English authority which equated the phrase 'consequential loss' in exclusion clauses with losses that fell within the second limb of the rule in the case of Hadley v Baxendale. These were losses which did not arise naturally from a breach of contract in the usual course, but which the parties reasonably knew when they contracted would be the probable result of a breach.

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