The contractor in Environmental Systems Pty Ltd v. Peerless
Holdings Pty Ltd  VSCA 26 specialised in the supply of
vapour emission control systems and engineering services to the
petrochemical industry. In its tender which formed part of the
contract there was a provision that the contractor "does not
accept liquidated damages or consequential loss". There was no
definition of what consequential loss was being referred to.
The contract required the supply of a Regenerative Thermal
Oxidizer (RTO) by the contractor. Ultimately the RTO did not
perform as required and the purchaser made various claims for its
loss and damages as a result including its costs incurred in
purchasing, installing and commissioning the RTO, the costs of
labour incurred in attempting to the make the RTO operate properly
and for the cost of the excessive gas consumption of the RTO when
it was operating. Although the purchaser's claim succeeded in
part, the Supreme Court held that that the simple statement in the
contract documents that the contractor "does not accept .....
consequential loss" prevented the purchaser from claiming its
labour costs of attempting to make the RTO operate properly and
also prevented its claim for the additional gas costs.
The Court in so deciding rejected earlier cases that limited
consequential loss exclusion clauses and decided that the words
"consequential loss" should have their ordinary meaning
that reasonable business persons would naturally give them.
Although from the point of view of the party seeking an exclusion
of consequential loss it is clearer to specify exactly what type of
consequential loss is being excluded, the Environmental
Systems decision means that simple words can be effective to
achieve an exclusion.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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