The High Court has found that, in the context of the particular limitation of liability clause in which they appeared, the words “consequential or special losses” should be given a wider meaning than losses falling within the second limb of the rule in Hadley v Baxendale.

Sir Jeremy Cooke, sitting as a High Court Judge, accepted that, when the relevant clause was read as a whole, it could be seen that the parties had not intended “consequential loss” to bear its usual meaning. The relevant clause was intended to operate as a complete code under which all liability for losses over and above those specifically accepted by the defendant shipbuilder were excluded. In light of this, “consequential or special losses” did not mean such losses, damages or expenses as falling within the second limb of Hadley v Baxendale, but had the wider meaning of financial losses caused by guaranteed defects, above and beyond the cost of replacement and repair of physical damage.

Some commentators are critical of the traditional interpretation of the words “consequential loss” in an exclusion clause, arguing that the phrase should be given a more flexible interpretation that takes into account the particular clause and the contract in which the words appear. The Court of Appeal in Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372 expressed similar concern in obiter comments, questioning whether some of the older cases dealing with consequential loss would be decided in the same way today, when courts are more willing to recognise that words take their meaning from their particular context, and the same word or phrase may mean different things in different documents. The High Court’s decision in Star Polaris seems to suggest support for a more flexible interpretation. It also illustrates that structuring a limitation of liability clause as a complete code of damages, which expressly states the liability to be undertaken, and excludes everything else, may be an effective approach. (Star Polaris LLC v HHIC-Phil Inc [2016] EWHC 2941 (Comm).)

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