Hotel Services Ltd. v Hilton International Hotels (UK) Ltd.

Whether loss is “indirect or consequential” for an exclusion clause depends on the clause’s language, contractual context and the surrounding facts. The expression commonly operates as a synonym for loss which does not flow directly and naturally from the breach, rather than as a general exclusion of every loss consequential upon breach. In a contract for hiring equipment, the direct consequences of dangerous unserviceability may include the cost of removing or neutralising the danger and profits which the equipment would otherwise have generated. No special mutual knowledge is required where those losses are the ordinary and immediate consequences of the breach.

Hotel Services Ltd rented electronic minibars to Hilton International Hotels (UK) Ltd under fixed-term agreements. The minibars developed dangerous ammonia leaks and were withdrawn. Hilton succeeded before the Official Referee on liability and recovered, among other sums, the costs of removing and storing the chillers and loss of minibar profits.

The appeal concerned the recoverability of those two heads of loss under a contractual clause excluding “indirect or consequential” loss and limiting other liability. The central issue was whether the losses fell within the exclusion clause or were direct consequences of the breach.

1. The appeal was dismissed. The costs of removing and storing the chiller units and the lost minibar profits were recoverable.
2. The meaning of “indirect or consequential” is determined by construing the words in their documentary and commercial context. The court rejected an automatic rule that every loss within the first limb of Hadley v Baxendale is necessarily direct, while every loss within the second limb is necessarily indirect.
3. The classification remains fact-sensitive. Authorities using different vocabularies must be read in the context of the particular exclusion clause. The phrase “indirect or consequential” commonly carries the usage-based meaning of loss which does not flow naturally and directly from the breach and which arises through special circumstances or an intervening cause.
4. In a contract for hiring equipment intended to generate trading profits, equipment which becomes unusable and dangerous gives rise directly and naturally to the cost of putting it where it can cause no harm and, where it had been producing a direct profit, to the loss of that profit. Those consequences require no special mutually known circumstances.
5. The court considered the authorities on both sides, including Millar's Machinery Co Ltd v David Way and Son, Saint Line Ltd v Richardsons, Westgarth and Co Ltd, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd, Croudace Construction Ltd v Cawoods Concrete Products Ltd, British Sugar plc v Projects Ltd, Deepak Fertilisers Ltd v ICI Chemicals and Polymers Ltd and BHP Petroleum Ltd v British Steel plc. The court preferred to decide the case on the direct factual application of the clause rather than by adopting an inflexible taxonomy.
6. Permission to appeal to the House of Lords was refused. The appeal was dismissed with costs.

• Court of Appeal (Civil Division): Appeal from the Official Referee’s Court dismissed. The judgment of His Honour Judge David Wilcox in favour of Hilton on liability and damages was upheld on the recoverability of the disputed heads of loss.