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David Lowe: Andrew the thing I spend most of my time helping people negotiate contracts is on liability,
and a lot of that time spent discussing with the other party “what is indirect loss?", "can it be excluded?” and it ends up being quite frustrating
because for everyone in the room we all struggle to understand exactly what it means, which then makes it really difficult to have a negotiation about it.
Andrew Smith: Yes and of course there’s been lots of case law going back to Hadley and Baxendale 19th century - even I was only a small boy at the time
and you would have thought that we would have got that kind of issue absolutely nailed on by now.
But of course the real problem with all these cases is that they are fact specific and trying to apply quite tricky rules to your particular facts,
particularly if they are theoretical facts, when you’re trying to negotiate your contract is really difficult.
David Lowe: Yes and with the new case, GB Gas and Accenture, we have a 21st century case to give us a sense of what indirect loss might mean in the 21st century.
It’s an IT case, it’s all about Accenture providing an IT system that provides billing support to Centrica and it doesn’t work and there are delays and Centrica suffers loss.
Centrica made claims for losses such as gas distribution charges, extra stationery costs, trying to pursue debts that actually were not really due
and one of the ones that I think was really interesting is goodwill and Accenture said, hang on, all of these are examples of indirect loss and are excluded by the contract.
The court looked at them, looked at all of the types of loss and said no, actually these are all direct losses, which yes, what is a direct loss is a very broad type of loss.
Andrew Smith: No, I couldn’t agree with you more actually. I think in this case, although it is applying quite well known principles and there is no new law in it,
I think the way that it looks at that direct loss/indirect loss issue is really significant.
I mean the most significant for me as one of the ones you mentioned was goodwill payments to third parties.
So your customers have suffered some inconvenience and as a gesture of goodwill you have no contractual obligation to pay these sums, eight million pounds is paid out
and the court says that that is direct loss and it does seem to me that it is quite tricky to work out what is going to be indirect loss in the future.
I don’t think it’s really an area where you’re going to have those kind of conversations anymore because you will be talking about other things.
David Lowe: Yes, because one of the conclusions is it’s not worth having an argument about excluding indirect loss.
As a supplier you are justified asking for it just in case, as a customer why worry about it because it’s not likely to be relevant
and I think the real focus should be on “what is the cap on liability?” which is afterall ultimately a commercial issue, albeit supported by the law.