This case involved the supply of a system by Eco-Tec to McCain. McCain wanted the system to remove hydrogen sulphide so that it could generate heat and electricity. The system was defective. McCain claimed hundreds of thousands of pounds for damages for (a) buying another system as replacement; (b) buying electricity instead of generating it; (c) loss of revenue from the system, including selling Certificates of Renewable Energy Production; (d) contractors, site manager, health & safety personnel, and various staff costs. Eco-Tec accepted that it was liable for (a), but argued that the other losses were indirect losses and it was therefore not liable for them as they were excluded by a clause in its contract that excluded liability for indirect or consequential losses.
The High Court ruled that all the losses were direct losses. The supplier was therefore liable for all the damages claimed.
There is nothing startling about the result. What is surprising is that many suppliers are still under a misapprehension about how much they are covered by a crucial clause which seeks to limit their exposure for something going wrong. A lot of businesses think that economic losses are indirect and they are therefore not liable for them. This is wrong. Physical damage or economic loss (such as loss of profits, loss of revenue, loss of reputation, etc) can be either direct or indirect. It depends on the circumstances according to an interpretation based on a legal case from 150 years ago.
Liability clauses go to the heart of why businesses have contracts – in order to give certainty. However, many people are trading under a misunderstanding of the level of the risk that they have accepted.