An Explanation of Consequential Damages When the terms of a contract's "mutual waiver of consequential damages" clause are being negotiated, the parties involved may not appreciate the differences between consequential and direct damages. 15.1.7 Waiver of Claims for Consequential Damages: The Contractor and Owner waive Claims against each other for consequential damages arising out of or relating to this Contract. The definition of consequential damages, also known as "special damages," refers to damages from an indirect result of an event or incident. Typically see “uncapped” as exceptions or carve outs in the limitation of liability section. Indirect and Consequential Loss. The Contractor and Owner waive Claims against each other for consequential damages arising out of or relating to this Contract. third party IP claims, product liability, environmental) • Big impact on allocation of risk 45. Carve-Out vs. Spin-Off . • CONSEQUENTIAL DAMAGES are those damages which, though they do not always or even usually flow from the breach of contract, are, at the time of making the contract, recognized by the parties as those which in the particular case may result from a breach. Consequential loss exclusion clauses are very common in commercial contracts, especially in those relating to construction and energy projects. These will only apply if the defaulting party is aware of the “special circumstance” when the contract was made. Detriment that arises from the interposition of special, unpredictable circumstances. Liquidated Damages and Waiver of Consequential Damages • Important to coordinate the drafting of both provisions • Include carve out language in the CD Waiver Clause to protect the owner’s right to recover the negotiated amount of LDs, while providing the contractor with other CD Waiver protection 21 3. ⎻Carve-out of certain types of claims (e.g. Violation of laws: In some cases, parties carve-out from a limitation of liability damages that result from the other party violating an applicable legal requirement. Consequential Damages: Injury or harm that does not ensue directly and immediately from the act of a party, but only from some of the results of such act, and that is compensable by a monetary award after a judgment has been rendered in a lawsuit. The idea in setting a cap is basically to limit the liability to the contractor’s fee or profit as opposed to the contractor having to come out of pocket to fund liability for consequential damages. Such waivers are fairly commonplace in today’s competitive construction market and often stand to benefit both parties. Damage to reputation or goodwill. The best way to think of such damages is in connection with an income-producing project such as a hotel, convention center, manufacturing facility, etc., from which an owner will derive income. It excludes those sections from the limitation on the types of damages … Here are the traditional bad boy acts, together with some expansions on the features: • Fraud • Traditional: Intentional, material misrepresen- Consequential damages are damages which flow indirectly from a breach of contract and are typically related to delays in performance and delays in completion of a project. Indirect Damages – special, incidental, indirect, punitive and consequential damages. What are Consequential Damages? ... consequential, special or punitive damages. Damages that may fairly and reasonably be considered as arising naturally, i.e. This For example, if the breach involved the destruction of a factory, both the cost of rebuilding and the loss of production suffered during rebuilding would fall within this first category. It’s true that negotiators do sometimes debate whether particular types of damage (e.g., damages covered by an indemnity obligation) should be carved out entirely from the damages cap. 341 (1854): damages awarded for breach only if it was foreseeable at the time of contracting that the type of damage being sought would result from the breach Seller and Buyer Positions When negotiating the inclusion or exclusion of consequential damages, sellers often assert that they should not be responsible for “speculative” damages or damages which are not otherwise foreseeable. 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