Consequential Consequences: Contractually Excluding Damages For Lost Profits

Clauses that exclude or limit the recovery of consequential or indirect damages are common in construction, services and other commercial contracts. These clauses can play an important role in risk allocation. This is particularly so in situations where a small breach of contract by one party can result in very significant consequential damages (such as large losses of profits) to another.

Exclusion and limitation of liability clauses often exclude "lost profits" from the types of consequential damages that are recoverable. But, will this type of clause always work to exclude recovery of any type of lost profit? As the recent Dow Chemical Canada ULC v. NOVA Chemicals Corporation, 2018 ABQB 482 case illustrates: not always. In summary, in some situations, if the claimed-for "lost profits" can be categorized as "direct damages" instead of "consequential damages", these sorts of standard clauses (which often times focus on lost profits in the context of consequential damages only) will be insufficient to fully exclude recovery of all lost profits.

The Limitation at Issue

The Dow...