McCain Foods (GB) Limited v Eco-Tec (Europe) Limited [2011] EWHC 66 McCain had a waste water treatment system which produced biogas. It contracted with Eco-Tec for a system to remove hydrogen sulphide from the biogas. McCain could then use the biogas as fuel to generate heat and electricity. Because the plant produced renewable energy, McCain was entitled to "Renewables Obligation Certificates" (ROCs) which could be sold on to other electricity suppliers. The contract excluded liability for "indirect, special, incidental and consequential damages". The Eco-Tec system was defective, so McCain claimed damages for the cost of replacement equipment, the extra cost of buying electricity because it could no longer generate its own electricity, the cost of contractors etc and the revenue lost through being unable to sell the ROC's. Eco-Tec accepted responsibility for the replacement equipment, but claimed the other heads of loss were indirect and thus covered by the exclusion clause.
The High Court (Mr Recorder Acton Davis QC, sitting as a Deputy Judge) held that all the heads of claim were direct losses. He reviewed several cases, starting with Hadley v Baxendale. In particular he looked at Hotel Services Limited v Hilton International Limited [2000] (where loss of profit from chillers in mini bars that were removed because they leaked ammonia was held to be a direct loss – in contrast to a claim for injury to the profitability of the hotel itself, which would have been consequential loss).
The costs of repair, replacement, mitigation and associated losses were all direct losses, as were additional utility costs. The lost revenue from ROC's was also held to be direct loss – use of the system would have resulted in revenue and that loss of revenue was a natural or immediate and thus direct loss caused by the inability to commission the system.
This case and the Accenture v GB Gas case (from 2010) show the risk that all loss clearly flowing from a breach of contract may be considered direct loss, rather than indirect loss. It is advisable (not that this is new advice) to analyse carefully the losses that might occur from breach of contract and to deal with each specifically in the contract, without necessarily categorising them as direct or indirect.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
