Since the decisions of Peerless Holdings and Regional Power, a lot of attention has been given to what 'consequential loss' means. Suppliers have been urged to precisely define 'consequential loss' and not rely on a general exclusion.
A recent Queensland Supreme Court decision, Vision Eye, is a timely reminder with a much simpler message: the first step is to ensure that commercial contracts exclude consequential loss.
Vision Eye also reinforces that without a contract exclusion, a party may claim lost profits from new technologies that may come to be used during a contract. This is even if the parties could not, at the time of entering the contract, precisely predict the new form of technology that would be developed.
VISION EYE INSTITUTE
In 2006 Dr Kitchen was engaged as an ophthalmologist in eye clinics ultimately owned by Vision. In 2009, Dr Kitchen wrongfully terminated the contract. As a result, Vision Eye could no longer effectively operate two of its clinics and closed them.
The service agreement did not include a consequential loss exclusion.
In Vision Eye Institute Ltd v Kitchen [2015] QSC 66, the Queensland Supreme Court found that Dr Kitchen was liable for:
- lost profits from the closure of the two clinics; and
- additional lost earnings that would have resulted from taking advantage of a development in medical treatment in 2010.
The court ordered Dr Kitchen to pay over $10 million in damages. Ouch.
The damages would have been a lot less if Dr Kitchen had ensured his service agreement excluded liability for certain types of losses, such as loss of profits, loss of revenue and loss of opportunity costs.
INDUSTRY DEVELOPMENTS AS CLAIMABLE LOSS
Vision Eye is very relevant for industries where revenue is liable to change as a result of innovation and new technologies.
With no exclusion clause, the Court found that lost earnings resulting from industry developments can be factored into a claim for damages. (So long as it is reasonable for the parties to contemplate that a breach of the contract would preclude a party from additional income from new technologies).
You don't have to know the "precise details" of how an industry will develop at the time you enter a contract in order to claim damages based on developments that eventuate.
ENSURE YOU ARE PROTECTED
There's no time like the present to ensure that consequential loss is excluded from your contracts. Given the Peerless and Regional Power cases, suppliers should define exactly what losses are excluded, rather than using terms such as "consequential loss", "indirect loss" or "special loss".
If your business is susceptible to new developments and technologies which affect future revenue, pay particular attention to the types of losses that could arise from a breach of contract and ensure this risk is addressed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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