Canadian law distinguishes between “direct damages” and “indirect and consequential damages” based on an English case from the 1800s, known as Hadley v. Baxendale . Direct and consequential damages are categorized on a case-by-case basis. Indirect damages refers to all the knock-on effects on the contract breach on the non-breaching party ... an exclusion of indirect damages includes a carveout for breaches of any confidentiality obligations. Direct damages, also called “general damages” in some contexts, are damages that naturally result from a breach of contract (i.e., the damages any party would usually incur in this situation). P.S: While drafting contracts, you may need to keep in mind that particular types of losses (e.g. loss of profits and loss of anticipated savings) can be either direct or indirect … This disclaimer is not often accepted by the disclosing party as the damages they are most likely to seek in a breach of NDA is consequential damage. If the confidential information is shared through a verbal communication, such as through meetings, then the party that is disclosing the information will need to provide some sort of written notification letting the receiving parties know that the information is to remain confidential. You should also be sure to name standard exclusions on what does not constitute confidential information. If damages are determined to be direct, they are compensabl… Toll Free: 800.975.9468 (Continued on page 2) Fax: 216.241.4520 Direct Damages, Consequential Damages & Liquidated Damages: A Brief Review by Robert Gavin We often are asked “What is the difference between direct … In the previous example, Startup Company can argue that it suffered $115,000 in direct damages (the $100,000 original licensing fee and the extra $15,000 it had to spend … direct (or incidental) damages; also known as “special” damages. One of the most important mechanisms in a contract for allocating risk is the ability to exclude “indirect” and “consequential” loss using exclusion clauses. I noticed that the Rocket Lawyer confidentiality agreement that I wrote about in this post yesterday excludes liability for “direct, indirect, special, or consequential damages.” Language excluding damages … U.S. perspective Direct damages are those that flow directly from breach of a contract. Cleveland, OH 44114 stand those damages directly related to the design defect. Consequential damages are those which arise from the intervention of “special circumstances” not ordinarily predictable. loss of profits and loss of anticipated savings) can be either direct or indirect depending upon the relevant circumstances. PNC argued that the refund and audit expenses it incurred due to the malfunction were direct damages, as opposed to consequential damages, owed by WKFS under the terms of the agreement. 1. Breaching confidentiality: No loss means no damages. When creating a nondisclosure agreement, it is important to always label these documents as confidential, so there is no confusion as to whether the information contained in them is privileged or not. Direct damages are those which arise “naturally” or “ordinarily” from a breach of contract; they are damages which, in the ordinary course of human experience, can be expected to result from a breach. The court held that “lost profits damages may take the form of ‘direct’ damages or the form of ‘consequential’ damages.”  Those profits lost on the breached contract itself, such as the amount the non-breaching party would have received, less expenses saved, are considered direct damages. If the confidential information constitutes a trade secret, you need to include specific languages as to the fact that expiration does not apply to trade secrets. ‘direct’, and losses that are ‘consequential’. Indirect and Consequential Loss… The first issue was the meaning of the words "indirect and consequential loss". The NDA should include what exactly constitutes the confidential information and any prior disclosures that need to be made before it is signed. Against this background, breaches of confidentiality agreements present unique challenges in sorting direct from consequential damages. disclaimer of indirect damages. Secondary caps can be creatively constructed to suit parties’ preferences, including subcaps for certain types of indirect or special damages. It seems that excluding consequential damages wouldn’t make sense for the Disclosing Party. In such contexts, (a) incidental damages are costs and expenses incurred by the non-breaching party to avoid other direct and consequential losses caused by the breach, and (b) consequential damages are damages that (i) are neither incidental nor direct damages and (i) normally and necessarily arise from the specific nature of either the particular breach or the buyer’s circumstances. These exclusions include: 1. The first car accident cannot be blamed for directly causing the injuries to those in the second car accident. Breach of Confidentiality ... •Parties sometimes agree to a cap on direct damages (1x, 2x, or 3x amount paid), but clients press to have unlimited liability claims of indemnity, confidentiality, and data breach . 2) ... • Exclude consequential, incidental, indirect, damages You should carefully consider the term you set for the NDA and the length of time that it can restrict the disclosure of the confidential information. 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