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Another Case for Careful Drafting

The case between McCain Foods GB Limited, the claimants, and Eco-Tec (Europe) Limited, the defendants, illustrates how there is a frequent vagueness regarding the judgment as to whether particular losses will be believed to be direct or indirect losses. It also emphasises the Court’s reluctance to permit a party to avoid legal responsibility where the loss has came about as a result of a breach of the contract between the parties.

In this case, the claimants argued that the BGPur system proved impossible to commission successfully. Therefore, McCain regarded Eco-Tec as being in repudiatory breach of contract and acknowledged that breach alternatively annulled the contract. As a result of this the claimants sought after recovery of monies paid under the contract and damages. The claim was denied by the defendants, who counterclaimed for money outstanding under the contract.

The claimants bought a BGPur system from the defendants; intending to eliminate Hydrogen Sulphide from biogas formed in McCain’s water waste treatment process. This clean biogas was then planned to be used to generate electricity through a Combined Heat and Power plant to supply a source of power and electricity for the plant.

The contract contained an exclusion clause, that was incorporated in an indemnity from the defendants to the claimants, which states that “in no event however will Seller be responsible for indirect, special, incidental and consequential damages” that arise from any breach by the defendant of any commitment or other obligation incorporated within the contract.

The Court held that the defendants were in breach of contract as the BGPur system was impossible to commission successfully.  Sitting as the Deputy Judge of the High Court, Mr Recorder Acton Davis QC held all the losses claimed as direct losses because the inability to commission the BGPur system resulted in a loss in revenue, which is a natural and immediate loss. The losses the defendants were liable for included the cost of contractors, site managers and health and safety personnel, attempted mitigation and the purchase of auxiliary equipment from Eco-Tec. The clause in the contract, which excluded the defendants from indirect and consequential loss did not have any affect on reducing or excluding any of the defendant’s liability for direct losses. The damages were assessed at £1,693,183.00 and the counterclaim was dismissed.

This dispute calls attention to the need for wording to be explicit and unambiguous in exclusion clauses.  The cost and time of the proceedings spent considering whether a loss is a direct or an indirect loss can be avoided, if the parties can agree as to what is a direct or indirect loss in the pre-contractual stage.

The information provided in this article is not a comprehensive analysis of the law and must not be treated as a substitute for legal or professional advice.  To the extent permitted by law, Kerrigans will not accept or otherwise be held liable for any loss or damage incurred in relying upon the contents of this article. Should you require any legal or professional advice about any of the topics covered in this article we recommend that you contact Kerrigans.


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