Prepare to face the consequences

A recent High Court decision in GB Gas v Accenture demonstrates the danger of relying on general exclusion clauses against loss. In this case the claimant managed to recover costs from a hardware failure despite the exsistence of a consequential loss exclusion clause.

Facts of the case

GB Gas Holdings Ltd v Accenture (UK) Ltd and others [2009] EWHC 2734

British Gas Trading Ltd agreed to purchase a new IT system from Accenture. Problems arose when errors and system failures caused a number of over-estimations for which British Gas had to compensate customers. British Gas claimed the resulting losses as damages against Accenture.

Accenture refused to pay the claimed losses costs and relied on the supply agreement which included an exclusion to liability for indirect and consequential loss. It was for the High Court to decide as a premliminary issue whether GB Gas were able to recover the losses or whether the exclusion of consequential loss prevented them doing so.

The preliminary decision

The Judge examined the following statements within the contract that excluded liability for:

• both direct and indirect loss of profits, or of contracts ;
• both direct and indirect loss of business or of revenues; and
• any “losses, damages, costs or expenses whatsoever to the extent that these are indirect or consequential or punitive”.

Following a long line of precedent decisions the judge held that despite the existence of the above clause, claimants suffering from a breach of contract are entitled to “fair and reasonable” damages in certain situations. This would include damages for losses arising either “naturally” or as the result of a reasonable expectation that the parties would have held in contention at the time of making the contract.

The Judge did not make a decision as to what costs were actually recoverable but stated that losses could be recoverable in this case despite the exemption clause, provided that they were:

• genuine expenses and as such did not fall under the exclusion clause; or
• taken in the context of the agreement and the responsibility of the defendant; or
• highly foreseeable consequences following a breach; or
• flowing naturally and in the ordinary cause of events from the breach.

Practical advice

The case illustrates the importance of not placing too much reliance on general exemption clauses as they may prove ineffective where potential losses arise as highly likely consequences or flow naturally from the breach of a contract.

It would be better to exclude such losses as individual clauses in a very clear and precise fashion, rather than in a general catch-all clause. Added clarity and certainty will ensure discussion and agreement between the parties about consequential losses and are likely to be deemed binding by the Court.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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