One week ago, two DJs from Australian radio station 2DayFM pulled a ridiculous stunt. In what can only be described as horrible British accents, they “impersonated” Prince Charles and Queen Elizabeth in a call to King Edward VII’s Hospital in London.
The two DJs had no plan other than to entertain listeners. Listening to the call, I’m sure even they were shocked when a nurse transferred them to Catherine’s ward and another nurse provided confidential information on Catherine’s condition. People the world over laughed right along with them. “How,” people wondered, “could those nurses actually take those two seriously?”
Three days after the call, people stopped laughing. The nurse who initially transferred the call, Jacintha Saldanha, was found dead of an apparent suicide. In less than a week, the DJs had become global pariahs as the joke morphed into a tragedy.
The truth is that we rarely know the full consequences of our action. Even after the fact, books are written on the ramifications of even the (seemingly) smallest of events. There is a poem, centuries old, which I’m sure you’ve heard in some variation:
For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.
The lost horseshoe nail and the tragedy of Jacintha Saldanha both speak to the legal concept of consequential damages. True to their name, “consequential damages” are those damages which arise as a consequence of some action or inaction on the part of the defendant. From a contractual standpoint, consequential damages are something to be avoided at all costs.
Allow me to provide a more common illustration. Let’s say that a flooring contractor was engaged to perform work on the remodeling of a large hotel. The contract provided for an early May completion date in anticipation of a Grand Opening coupled with large Mother’s Day and Memorial Day bookings.
Unfortunately, the order was delayed at the mill, so the carpeting could not be laid until the first week of June. Without carpeting, the hotel was not ready to receive guests. In what was to be an extremely busy May, the hotel’s rooms and restaurants stayed empty.
Consider the possibilities for the flooring contractor’s contract. One version of the contract would hold the flooring contractor responsible for “any all damages that arise from or are related to the subcontractor’s work.” A second version of the contract would hold the flooring contractor liable for “any all actual, out-of-pocket damages arising from or relating to the subcontractor’s work, specifically excluding consequential damages and lost profits.”
Version 1 could kill the subcontractor’s company as it could enable the subcontractor to be held liable for all of the hotel’s lost Mother’s Day and Memorial Day profits – a claim for which the subcontractor may not even have insurance coverage.
Version 2, on the other hand, has all the makings of a carefully negotiated contract. The damages clause specifically eliminates the risk that the subcontractor would face what would inevitably be a very large claim for consequential damages such as lost profits. Not to put too fine a point on it, the rewording of that one clause in Version 2 through negotiation could very well have saved the subcontractor’s company.
Sure, the wording of this one clause is a little thing. But then, for want of a nail…