How often do we see: "neither party shall be liable for any incidental, indirect, special, punitive, consequential,...[it goes on...] damages, including loss of profit, loss of business, loss of data...? We often look for this clause and blindly insist that it must be included, but did you know that this could leave you completely exposed in some instances? It is therefore important to understand the meaning of these terms and exclude them where appropriate.
What does it all mean? Some of these terms are used interchangeably. Different terms may be used (and sometimes have different meanings) in different jurisdictions, etc. We have a brief look at the meaning of some of these terms.
In South African law, we generally distinguish between general damages/direct damages; and special/consequential damages. The difference between general damages and special damages has been described by Trollip JA in Shatz Investments (Pty) Ltd v Kalovyrnas as follows: "General damages are those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes that the parties contemplated would result from such a breach. Special damages, although caused by the breach of contract, are ordinarily regarded in law as being too remote to be recoverable, unless, in the special circumstances attending the conclusion of the contract, the parties actually or presumptively contemplated that they would probably result from its breach".
Incidental damages are commonly used in American contracts and generally refer to costs and expenses incurred by the non-breaching party to avoid other direct and consequential losses caused by the breach, and consequential damages are damages that are neither incidental nor direct damages. Punitive damages are another American term and are not generally allowed under South African law.
If you are the customer entering into a service agreement with a service provider, it is important that you discuss with your attorney the need to exclude damages suffered as a result of breach of:
- confidentiality;
- third party IP infringements; and
- data protection obligations from the application of a too wide limitation of liability clause.
This is important because the damage suffered as a consequence of such breaches are likely to result in special/consequential damages and/or loss of profit, data, business, etc.
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.