Glossary

Consequential loss

is the second limb of remoteness in Hadley v Baxendale (1854) 9 Exch 341: loss that was not the usual result of the breach, but that both sides contemplated when they contracted. English commercial papers often exclude "indirect or consequential loss". That phrase does not automatically cut out loss of profit. Name the heads you mean.

Last updated 28 October 2026

The first limb is ordinary loss — the natural result of the breach. The second limb is unusual loss that was in both minds at formation. A late website launch that costs the client their usual weekend sales is often first-limb. A lost enterprise deal they never mentioned is often second-limb. The Achilleas [2008] UKHL 48 added an assumption-of-responsibility gloss; Hadley is still the starting case.

We would rather you list the heads — profit, data, goodwill, substitute spend — than rely on “consequential” as a magic word. Lex puts the exclusion next to the liability cap. Direct extra cost to finish the job is usually left in. Unfair Contract Terms Act 1977 s.2 still stops you excluding death or personal injury for negligence.

Does excluding consequential loss cut out lost profit?

Not by itself. English cases treat some lost profit as direct. If you want profit out, say “loss of profit, loss of revenue, loss of business.” Starving the other side of every money claim, including the fee they paid you, is a different and more aggressive draft. Be precise.

What did Hadley v Baxendale decide?

A mill’s crankshaft was delayed; the mill stood idle. The carrier was not told the mill would stop. The court held that unusual loss is recoverable only if it was in both parties’ contemplation at the time of the contract. That is the second limb. Ordinary, usual loss is the first.

Should loss of profit be named?

Yes, if you mean to exclude it. Also name business interruption, wasted spend, data loss and reputational loss if those are the real worry. A blanket “indirect or consequential” line is the clause most often argued about after a failed launch.

How does this sit with the liability cap?

The exclusion removes heads of loss; the liability cap limits what remains. Draft them together. An exclusion that leaves only “direct loss” plus a low cap is the usual freelance bargain. Do not exclude every head and also cap the rest at £1 unless that is the deal you can stand behind.

A worked example

A shop’s services agreement excludes “indirect or consequential loss, including loss of profit.” The studio delivers two weeks late. The shop claims the usual takings for those two weeks and a cancelled enterprise pitch it never mentioned. The usual takings may still be direct. The unmentioned pitch is the Hadley second limb and is the one the exclusion is aimed at. Next time the studio names both heads.

How it shows up in a contract

Sample wording · our own drafting

Neither party is liable for any indirect or consequential loss, or for loss of profit, loss of revenue, loss of business, loss of goodwill or wasted expenditure, whether arising in contract, tort or otherwise, except for the Fees due and any liability that cannot be excluded by law. This clause applies inside the liability cap.

In Plain English

Neither side pays for unusual knock-on loss, lost profit, lost business or wasted spend. Fees that are owed still have to be paid. The law’s non-excludable liabilities stay. This sits inside the cap.

Common mistakes

  • Assuming “consequential” automatically removes lost profit. It does not.
  • Excluding every head of loss so the other side has no money claim at all, then wondering why they will not sign.
  • Leaving the exclusion silent on the liability cap.
  • Citing Hadley in the clause and then listing nothing. Name the heads.

What the legislation says

  • Damages for breach of contract cover loss arising naturally from the breach itself, in the usual course of things, and loss that both parties may reasonably be supposed to have contemplated, when they made the contract, as the probable result of the breach.

    Source: Hadley v Baxendale, (1854) 9 Exch 341Checked 3 November 2026Pending lawyer review

  • Liability for death or personal injury caused by negligence cannot be excluded or restricted by a contract term; other negligence liability can be limited only so far as the term is reasonable. Consumer contracts are carved out to the Consumer Rights Act 2015, whose s.31 lists liabilities a trader cannot exclude in contracts for goods.

    Source: Unfair Contract Terms Act 1977, s.2Checked 7 October 2026Pending lawyer review

Sources

Frequently asked questions

What is consequential loss?

The second limb of Hadley v Baxendale (1854) 9 Exch 341: loss that was not the usual result of the breach, but that both sides contemplated when they contracted.

Does excluding consequential loss cut out lost profit?

Not by itself. Some lost profit is direct. If you want profit out, say so by name.

What did Hadley v Baxendale decide?

Unusual loss is recoverable only if it was in both parties’ contemplation at formation. Ordinary, usual loss is recoverable without that special knowledge.

Should loss of profit be named?

Yes, if you mean to exclude it. Also name goodwill, wasted spend and data loss if those are the real risk. See /glossary/liability-cap.

Related

The legal wording governsLast reviewed 28 October 2026Pending lawyer review