Consequential loss and Alstom
Insolvency Update – Autumn 2013
Consequential loss has a broad meaning in Australia, as was held in Alstom Ltd -v- Yokogawa Australia Pty Ltd & Anor (No 7)  SASC 49. The case is a timely reminder that if your written agreement provides that a counter-party may exclude its liability for consequential loss, you should ensure that consequential loss is defined in the contract.
The case continues the shift in Australian case law away from the traditional approach of aligning consequential loss with “losses within the contemplation of the parties at the time they made the contract as the probable result of its breach”, being the second limb of Hadley v Baxendale (1854) 9 Exch 341.
The aim of damages for breach of contract is to put the innocent party in the position it would have been in had the contract been performed. This is subject to the rule that damages will not be recoverable if they are too remote from the breach.
According to the Alstom case, consequential loss means anything beyond the normal measure, such as profits lost or expenses incurred through the breach.
So it is no longer the contemplation of the parties that lawyers and insolvency practitioners need to look at, they need to look beyond that to the actual language used and consequential loss can include anything beyond the normal measure, such as profits lost or expenses incurred through the breach.