How to draft consequential loss clauses

The key drafting point for consequential loss clauses in the wake of the current state of the law is to avoid drafting ‘bare’ consequential loss exclusion clauses, which in no way define what is included or excluded.

One method of introducing some certainty is to state in the contract in respect of particular heads of damage whether or not the clause includes or does not include the head of damage.  An alternative method is to state the particular test that it is intended apply to the contract, including for example the common law position under Hadley v Baxendale. Two simple examples of this are as follows:

Example 1:

(a)      Subject to paragraph (b), in no event will either party’s liability include any amount for indirect, special or consequential loss or damage.

(b)      Nothing in paragraph (a) will preclude the recovery by [the Customer] of loss or damage which may fairly and reasonably be considered to arise naturally, that is according to the usual course of things, from the breach or other act or omission giving rise to the relevant liability.

Example 2:

Neither party is liable for indirect or consequential loss (where “indirect and consequential loss” means the type of loss described in what is commonly referred to as the “second limb” of Hadley v Baxendale (1854) 9 Exch 341, and does not have the meaning given in the decision in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26 (or any similar line of authority in Australia)).