CMS Guide to Consequential Loss in Austria

The term “consequential loss” itself does not explicitly exist under Austrian law. Nevertheless, Austrian doctrine uses the concept of Folgeschäden (literal translation “consequential damage”) to define damages which (a) do not result directly from the damaging act, but arise indirectly from an infringement of legal rights, or (b) result from the same damaging cause but materialise later. However, as Folgeschaden is not explicitly defined in the Austrian Civil Code (ABGB), there is no clear and uniform demarcation of what specific disadvantages fall under the definition of Folgeschäden. Whether a Folgeschaden happened must be assessed casuistically – a myriad of decisions of the Austrian Supreme Court (OGH) provide guidance. Examples: damages for loss of earnings due to a cessation of operations caused by construction errors of a machine (the damage in the machine itself caused by the construction defect would be direct damage under Austrian law; or water damage or mould due to a faulty renovation of a building. In no case do consequential damages include mere financial losses.

In order to be recoverable, Folgeschäden must pass the general test of adequate causation and must result from an unlawful and culpable damaging act. The general prerequisites for the recoverability of damages (including Folgeschäden) are set out in the ABGB and are heavily influenced by numerous OGH decisions which, although not binding, are generally followed in the lower courts.

But be careful! Consequential damages if anyhow foreseeable are subject to the same limitation period as the primary damage.

There is an ongoing debate about how far environmental and climate damage can be combatted through the law on compensation for damages. Under Austrian civil law, damage to the environment itself, such as climate change or the reduction of biodiversity, is not compensable. One of the hurdles is the lack of causality between the actions of legal entities and the supra-individual interests of humanity, which could be resolved by, for example, a future granting of legal personality to ‘the environment’ or on the other side the state being liable to protect such interests. What can be claimed as consequential damage, are losses caused by a primary event such as poisonous emissions into a lake or the breakdown of a regional electricity grid and further damage caused by such events.

Yes, an exclusion of “consequential losses” is commonly used in Austrian contracts across a variety of industries including energy. They are particularly common in contracts for the installation and construction of energy facilities but also in energy supply contracts, and (renewable) energy communities. Another broad area is which damage caused by a loss of energy supply up to a collapse of the grid or a black-out are covered by different kinds of insurance contracts.

The wording of exclusions varies, depending on the nature, size and importance of the contract. While extensive liability limitation is found in elaborate contracts that clearly define which damages can be recovered, examples used in simpler energy sector contracts include:

• Energy contract: Liability for indirect damages and consequential damages, regardless of the legal basis on which they are based, as well as for loss of profit is excluded. (Die Haftung für mittelbare Schäden und Folgeschäden, gleich auf welcher Rechtsgrundlage diese beruhen, sowie für entgangenen Gewinn wird ausgeschlossen.)
• EPC contract: Liability for consequential damages, especially loss of production and loss of profit, is excluded by mutual agreement. (Die Haftung für Mangelfolgeschäden, insbesondere Produktionsausfall und entgangenen Gewinn, wird einvernehmlich ausgeschlossen.)

In business-to-business contracts, an exclusion of liability: (i) for intent is void; (ii) for slight negligence is permissible; and (iii) for gross negligence is generally permissible if it is not extremely unjust or immoral (sittenwidrig). Such immorality applies to cases of “blatant gross negligence” (krass-grobe Fahrlässigkeit), a specific category “developed” by OGH. The same is generally applicable to business-to-consumer contracts, with the exception that an exclusion of liability for gross negligence on the part of the business is void. Companies often stipulate limitations of liability in general terms and conditions (Allgemeine Geschäftsbedingungen). In a 2017 decision, OGH held that in a business-to-business transaction the following exclusion of liability clause in the general terms and conditions was legally permissible: “Claims for damages in any case only cover the pure repair of damage, but no consequential damage and loss of profit”. The reasoning was that liability was not complete excluded restricted to direct loss (Positiver Schaden). In this specific case, the court held that the clause was not immoral because it was used in a mutual business transaction. In practice, the legal admissibility of liability exclusions should be checked in each specific case.

In business-to-consumer transactions the transparency requirement of Sec 6 para 3 of the Consumer Protection Law (Konsumentenschutzgesetz) must be considered. Unclear or incomprehensible clauses in general terms and conditions are invalid. Jurisprudence is very strict.

As the term “consequential loss” itself is not explicitly defined under Austrian statutory law, the meaning attributed to it depends on the interpretation of the specific contractual clause(s). As a rule of thumb, damages arising from a breach of contract are recoverable if such damages and the other party’s interest in avoiding them were foreseeable under the infringed contract.

A tricky aspect is the meaning of “consequential damages” in contracts which are subject to Austrian law but written in English. There are currently no decisions by the OGH relating to energy matters. So, the general rule applies: In case of doubt, a foreign language term used in an Austrian law contract has the meaning it has in the home jurisdiction of the term in question – i.e. English/common law. However, often this is a surprising consequence for the contractual parties, so that a case-by-case interpretation is advisable what the true intent of the contractual parties (Absicht der Parteien) at the time of signing the contract was. To find out the parties’ intention, any evidence may be used. In practice, witnesses who participated in negotiating the contract, email correspondence, memos or draft versions of the contract are used for this purpose.

If the true intention of the parties cannot be determined by any of these means, the so-called ambiguity rule of the ABGB is the final recourse. According to this interpretation rule, ambiguous clauses in transactions carried out for consideration are interpreted to the disadvantage of the party that introduced them. In gratuitous transactions, an ambiguous clause is interpreted in the way that results in a lesser burden to the obligor.

As mentioned above, Austrian law uses the concept of Folgeschäden (literal meaning “consequential damage”) to define damages which do not result directly from the damaging act but arise indirectly from the infringement of legal rights. As the concepts of Folgeschäden and “consequential losses” appear to overlap, courts in Austria might refer to the meaning of Folgeschäden when deciding on the exact meaning of “consequential losses”. Due to a lack of a statutory definition for the English term “consequential damages” or any relevant case law on that issue, it is therefore not possible to pinpoint the exact meaning of the term. For this reason, parties usually define “consequential loss”, i.e. concisely list the disadvantages falling under the exclusion of liability.

In high value contracts it has become standard to specifically describe the types of losses that shall be excluded (i.e. by adding a list of all such losses) and/or to add Austrian legal terms in brackets to the English wording.

In order to determine the exact meaning of these other types of losses listed in a contract written in English governed by Austrian law, the contractual interpretation rules laid out above are to be used.

If the list of excluded damages is exhaustive, courts would likely treat damages that are not expressly excluded as recoverable (even if other comparable damages are excluded). It is common to structure an exclusion of liability clause like a cascade beginning with general exclusions like for slight negligence, then excluding specific kinds of damage such as loss of profit, and finally by agreeing liability caps, etc. Therefore, careful drafting of contractual exclusion of liability clauses is essential. However, there are no specific rules how to interpret certain terms if used in connection with other terms.

A mere exclusion of liability for consequential losses does not have an impact on non-damages claims. However, in many cases contracts also stipulate other exclusions of liability.