The Achilleas

1. Being commonly approved before the Sylvia Shipping case, effect of the decision featured one more requirement to the implementation of "first limb" loss. Arguably, a claimant following The Achilleas had to show that the loss in issue would unlikely happen in the ordinary course of things. Therefore, it was in the parties’ understandable contemplation once they have joined their bargain causing the defendant to take such a risk of loss.

2. Slyvia Shipping’s decision beneficially explains the uncertainty, which is caused by the decision of the House of Lords in The Achilleas. Currently, The Achilleas decision’s application is limited to such cases, where atypical circumstances legitimize a concern that the party, which looks for the damages of the "first limb"(that are supposed to appear in the common course of things), thus, showing that the party in the contract breach also accept the responsibility for the loss in question. Claimants, in the majority of cases, do not need to show that the defendant must admit liability for the damage.

3. As it was before, parties should carefully regard the extension, to which their contract interdicts liability for the particular kinds of loss. Moreover, it is typical that parties will, for instance, search to forbid liability for profit loss. Nevertheless, it should be noted that it is a typical drafting misbelief that the liability exclusion clauses are doubtful. It means that the liability is excluded for profit occurring in the typical cause of things (for instance, a "first limb" loss) or profit occurring under special circumstances together with knowledge of the parties (such as loss, called "second limb", which is generally termed as "consequential loss"). In addition, characterizing the profit of loss as a "consequential loss," liability for second limb lost profit is often excluded. Lost profit tends to occur in the common course of things, and it is not explained as "consequential loss". Thus, it is not typically excluded by this language.

4. Other area of the law on damage’s distance requiring the Supreme Court’s consideration is the effect along with the proper intent of these exclusion clauses and true "consequential loss" interpretation in this context. Therefore, it is obvious that care should be exercised in any case because the liability clauses’ exclusion of "boiler plate" may have unintended consequences if it is not carefully prepared. For parties, it has been always prudent to negotiate and allocate risks expressly. Therefore, drafting contracts features the risks’ explanations, which can be assumed or excluded by the parties.

Presented by various decision views of the House of Lords in The Achilleas, uncertainty makes precise on the issues regarding risk allocation far more critical than others. For parties, a typical practice in the spheres of construction and mining is to apply a liquidated damages regime for late completion or delivery not on time. Therefore, the parties are given certainty regarding the risk. It is obvious that the owner has greater confidence of loss recovery. At the same time, the supplier or contractor has certainty in their breach risk exposure.

Nevertheless, there can be other cases, when not on time supplies (explosives, tyres or other relating things for mines), labour (for maintenance services of gas and oil processing facilities, which are remotely placed) or equipment delivery (for instance, vessels’ supply for offshore oil and gas projects) are likely to make the operators or owners of mines and facilities decrease production or experience the production loss.

Furthermore, a far bigger demand and wider pricing fluctuations for mineral, oil and gas resources can occur in the buoyant economy. A disinclination or difficulty for the parties may occur in agreement with a liquidated damages regime, in which the parties may have to look for alternate approaches of risk management.

The following approaches may comprise:

  • approval of specific heads of loss, about which every party is concerned to pass on possible liability to the counterparty;
  • limitation of liability along with liability provisions’ forbiddance applying to admitted monetary caps and eliminating the admitted kinds of loss (for example, loss of business opportunity, consequential loss and loss of production);
  • inclusion of force majeure provisions for exemption from acts of god as well as other unexpected circumstances, which are beyond the control of the parties;
  • use of insurance coverage for the earnings loss of the owner (together with coverage of various force majeure events).

While negotiating their contracts, the parties should take into account these commercial and risk management considerations.