Exclusion of Consequential Loss Case Note Update: Macmahon Mining Services v Cobar Management [2014] NSWSC 502

May, 2014

Summary

A recent decision of the NSW Supreme Court (McDougall J) on a notice of motion provides a succinct analysis as to the current approach in interpreting clauses excluding or limiting liability for consequential loss.

Background

Macmahon as contractor and Cobar as principal entered into a design and construct contract for certain works for the development of a copper mine at Cobar in NSW. Less than 2 years into the contract Cobar issued a notice of termination of the contract to Macmahon. Macmahon claimed the purported termination was invalid and Cobar had, therefore, repudiated the contract.

Macmahon subsequently notified Cobar it accepted the repudiation and now sues Cobar for damages. One of the heads of damage claimed is “loss of opportunity to earn profit”. Macmahon claims that had the contract continued to completion it would have made a profit of $92,000,000. It is therefore suing for $67,000,000 of lost profit.

Proceedings

Cobar brought a notice of motion for summary dismissal of the claim by Macmahon for loss of opportunity to earn profit.

In doing so it relied on clause 18.5 of the contract which provides:

“Despite anything else in this contract, neither party will be liable to the other for any Consequential Loss.”

In addition to this clause excluding consequential loss, there was an overall limit of liability clause limiting each party’s total aggregate liability to the other to be limited to an amount equivalent to the Contract Sum. One of the exceptions to this overall limit on liability was “wilful misconduct”.

Consequential Loss was defined in the contract as meaning:

“(a) any special or indirect loss or damage; and (b) any loss or [sic] profits, loss or [sic] production, loss or [sic] revenue, loss of use, loss of contract, loss of goodwill, loss of opportunity or wasted overheads, whatsoever, whether direct or indirect.”

The heart of the issue was whether the wording of cl 18.5 applied in circumstances where there is a wilful and knowingly unfounded termination for breach.

Outcome

His Honour found that:

  • any form of loss, whether direct or indirect, comes within the contractual definition of Consequential Loss;
  • the expression ‘contract’ was shorthand for ‘benefit of contract’; and
  • when making the contract the parties must have considered that the Consequential Loss exclusion would include the loss of the benefit of the contract which, ordinarily, would be a consequence of accepted repudiation.

In finding in favour of Cobar concerning the Consequential Loss exclusion his Honour stated:

“The parties constructed a careful bargain in which they provided for the way in which liability each might have to the other would be limited or regulated… If they chose to exclude such loss in the case of breach not amounting to repudiation (and in my view this is clear), it is understandable that they would select no different course in relation to breach capable of amounting to repudiation.”

and

“I do not think that the clear words of cl 18.5 should be read down.”

Conclusion

The Courts are likely to give effect to clauses excluding or limiting liability where these are drafted using clear language. Unless explicitly provided for in the relevant clause, these clauses will stand even where there has been conduct amounting to wilful or deliberate breach.

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