Law360 Guest Column: Direct And Consequential Damages in Contract Disputes

11/03/2011

Law360, New York (November 03, 2011, 3:08 PM ET) -- In a recent dispute where Haynes and Boone LLP represented the claimant, an arbitrator awarded over $4 million to a pipeline company that had purchased and installed respondent’s defective valves. The award included over $2 million in out-of-pocket costs, nearly $900,000 in past and future lost profits, and over $600,000 in attorneys’ fees.

The award’s linchpin was the fact that the parties’ contract did not include a clause excluding respondent’s liability for consequential damages. In a celebrated New Jersey case, arbitrators likewise awarded $14.5 million in damages on a $600,000 construction contract because the contract did not include a clause barring consequential damages. See Jason L. Richey & William D. Wickard, Consequential Damages in Today’s Construction Industry, Constructioneer, *10, May 5, 2008. The New Jersey Supreme Court affirmed the award. Perini Corp. v. Greate Bay Hotel & Casino Inc., 610 A.2d 364 (1992).

These cases illustrate again the importance of properly drafted limitation-of-liability contractual clauses. But even this precaution has its limits. Texas case law shows that direct damages alone can be substantial depending on the facts of the case. Damages that are usually classified as consequential can sometimes be treated as direct damages depending on the contract’s language. Counsel should mind these dangers as they draft their contracts.

Excerpt from Law360, Nov. 3, 2011. To view the full article, click the PDF linked below.

Direct-And-Consequential-Damages-In-Contract-Disputes.pdf

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