Home Knowledge Limiting Liability – Direct and Indirect Damages

Limiting Liability - Direct and Indirect Damages

The UK Court of Appeal has recently examined the basis for calculating damages.  The case concerned an analysis of preliminary issues between British Gas and Accenture whereby British Gas sought damages of £182 million due to problems with a billing system provided by Accenture.  An agreement between the parties contained a limitation on liability clause which prevented either party being liable for indirect damages.

In analysing the extent to which the limitation on liability applied to the case, the Court found that customer compensation, gas distribution charges, additional borrowing charges, the cost of chasing debt and obtaining additional stationary were recoverable by British Gas as they were to be considered direct damages and not indirect damages.  The argument as to when losses are direct or indirect will be determined by the facts of the case.  In this mater, the UK Court of Appeal appears to have taken a broad view of direct damages.   

A full trial is expected to begin in 2011 and the case will be closely watched.  It will be particularly interesting to monitor whether the Irish Courts adopt a similar expansive interpretation to what constitutes direct damages.  For now, parties to commercial agreements should ensure that appropriate consideration is given to limitation on liability clauses and that which they wish to exclude.  Excluding liability for indirect losses alone may not be sufficient in all instances.