Direct damages are the value of what was promised and not delivered. Consequential damages are the further losses flowing from the breach — lost profits on resale, downstream liabilities, business interruption. The second category is usually much larger and is routinely excluded by contract.
Foreseeability. Consequential damages are recoverable only if they were reasonably foreseeable at contracting, either because they arise naturally or because the special circumstances were communicated. Telling a supplier what the component is for, in writing, is what makes the downstream loss foreseeable.
Certainty. Lost profits must be proved with reasonable certainty. New ventures without a track record struggle; established businesses with historical margins fare much better. Expert modelling is usually required.
The exclusion clause. A mutual waiver of consequential damages is standard and generally enforced between commercial parties. Read what it carves out — indemnity obligations, confidentiality breaches and gross negligence are common exceptions, and their presence or absence changes the risk profile entirely.
Lost profits can be direct. Where the contract is itself for the resale of goods, lost resale profit may be the direct measure rather than a consequential one. Courts differ, and a waiver clause drafted without that in mind may exclude more or less than intended.
Caps interact. A liability cap and a consequential waiver do different jobs. Negotiating one while ignoring the other leaves an obvious gap.