The Legal Framework Under English law, the concepts of consequential and indirect loss trace back to the landmark case of Hadley v Baxendale (1854) 9 Exch 341. Losses are divided into two categories: direct losses, being those that arise naturally from the breach (the 'first limb'); and consequential or indirect losses, being those that were within the parties’ contemplation at the time of contracting as a probable result of breach (the 'second limb').

We examine the differing legal standards of “fitness for purpose”, “ordinary purpose”, and “built to specification”. For this purpose, we look at it in the context of offshore projects, using as an illustration a contractor engaged to install a Produced Water Treatment Unit required to achieve an effluent standard of less than 10 parts per million (ppm) oil prior to discharge or reinjection. The analysis addresses how each standard affects the contractor’s obligations and pot