Legal Definitions - consequential loss

Consequential loss refers to indirect damages that arise as a result of a breach of contract or a wrongful act, rather than being a direct and immediate outcome. These are losses that are not directly caused by the initial event but are a secondary consequence of it. For a party to claim consequential loss, it must generally be shown that these losses were reasonably foreseeable or within the contemplation of the parties at the time the contract was made, or in tort, that they were a natural and probable result of the wrongful act.

Here are some examples to illustrate consequential loss:

• Example 1: Business Interruption from a Delayed Delivery

  Imagine a custom furniture maker who orders a specific type of rare wood from a supplier. The supplier breaches the contract by delivering the wrong wood, causing a three-week delay while the correct wood is sourced and delivered. The direct loss might be the cost difference for expedited shipping of the correct wood or the cost of storing the incorrect wood. However, the consequential loss would be the profit the furniture maker lost during those three weeks because they couldn't complete and sell their custom pieces, as well as any penalties they might have to pay to their own clients for delayed delivery. These are indirect financial impacts stemming from the initial breach.

• Example 2: Loss of Use Following Property Damage

  Consider a situation where a negligent driver crashes into a small business owner's delivery van, rendering it unusable for repairs for several weeks. The direct loss is the cost to repair the van and its diminished value. The consequential loss for the business owner would be the lost income from deliveries they couldn't make during the repair period, the cost of renting a temporary replacement vehicle, or the expense of hiring a third-party delivery service. These are financial harms that flow indirectly from the damage to the van.

• Example 3: Missed Opportunity due to Faulty Software

  A startup company commissions a software developer to create a unique mobile application designed to launch alongside a major industry conference. Due to significant bugs and delays caused by the developer's negligence, the app is not ready for the conference. The direct loss might be the fees paid to the developer for the faulty work. The consequential loss would be the significant number of potential users and investors the startup failed to acquire by missing the high-profile conference launch, representing a lost opportunity for market penetration and funding. This lost potential is an indirect but significant financial setback resulting from the developer's failure.