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Australia – Peerless Decision On “Consequential Loss” Revisited.

25 October, 2013

 

Legal News & Analysis – Asia Pacific – Australia – TMT

 

A recent decision of the Supreme Court of Western Australia has re-opened the debate about what constitutes ‘consequential loss’. The issue is of specific relevance to IT contracts under which suppliers typically seek to totally exclude liability for consequential loss. The Victorian Court of Appeal held in Environmental Systems Pty Ltd v Peerless Holdings in 2008 that the term embraced more than loss falling under the second limb of Hadley v Baxendale, meaning that the effect of the exclusion may have been broader than originally anticipated by the parties. This reasoning was followed in New South Wales in 2009 in Allianz v Waterbrook.


A recent Western Australian decision by Justice Kenneth Martin in Regional Power Corporation v Pacific Hydro Group Two Pty Ltd, however, adopted a different approach. His Honour considered that it was appropriate to interpret the term ‘consequential’ from a commercial perspective based on its ordinary and natural meaning in the context of the agreement, rather than being constrained by a ‘rigid construction principle’ derived from Peerless.


The effect of the decision is that there is now some uncertainty in interpreting the extent of an exclusion of liability for ‘consequential loss’, with different approaches being adopted in Victoria and Western Australia, and accordingly particular care must now be taken in articulating precisely what type of damages the parties intend to exclude under a contract.


View the decision here.

 

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For further information, please contact:

 

Gordon Hughes, Partner, Ashurst
[email protected]

 

Ashurst TMT Practice Profile in Australia

 

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