In the long running case of Global Water Associates, the Privy Council overturned the Eastern Caribbean Court of Appeal in relation to its decision on remoteness of damage reinstating the first instance judge’s decision. The matter will therefore be remitted back to the arbitrators for assessment of damages.
In 2006 a BVI company, Global Water Associates Limited, (GWA) entered into two contracts with the BVI Government for the building and maintenance of a water treatment plant. The first contract, a design build agreement (DBA) covered the terms for building the water treatment plant. The second contract outlined the terms for the management, maintenance and operation of the water plant (MOMA). Both contracts were entered into at the same time between the same parties and used the same definitions. The Government repudiated the DBA and no water treatment plant was in fact built. GWA subsequently claimed damages for loss of profits arising under the DBA. The arbitrators decided that damages for loss of profits on the MOMA were too remote to claim under the DBA. The award had been successfully appealed at first instance but the Court of Appeal upheld the arbitrators’ award.
On appeal, the Privy Council distilled five principles for determining remoteness of damages:
- The purpose of awarding damages is to put the party, whose rights have been breached, in the same position as far as money can do, if those rights had been observed.
- For damages to be recoverable, the loss must have been reasonably contemplated as a serious possibility.
- What the parties reasonably contemplated depends on the knowledge possessed by the contracting parties at the time of the breach.
- What the defaulting party contemplated is an objective one. The law assumes that the defendant thought about the consequences of the breach of contract at the time it was made.
- The criterion for deciding what the defaulting party must be taken to have contemplated if there was a breach is a factual one.
Applying the principles to GWA’s claim, the Privy Council was satisfied that loss resulting from an inability to earn profits on the MOMA was within the reasonable contemplation of the parties when entering the DBA.