CMS Guide to Consequential Loss in Bulgaria

Bulgarian law does not recognise the term “consequential loss”.

Under Article 82 of the Obligations and Contracts Act (OCA), damages cover the “losses suffered and the loss of profit as far as they are a direct and immediate consequence of the non-performance and could have been foreseen upon the arising of the obligation. However, if the debtor has acted in bad faith, he shall be liable for all direct and immediate damages.”

Under Article 82 of the OCA, Bulgarian legal doctrine and case law outline the distinction between two types (heads) of losses:

1. Losses which are a direct and immediate consequence of the breach and which are recoverable. This first type of losses is considered normal and inevitable consequence of the non-performance of the contractual obligation of the default party. Bulgarian law classifies them as direct losses and losses of profit.
2. Losses that Bulgarian doctrine assumes to be “indirect”. Unlike the legal term “direct and immediate”, used in the OCA, “indirect loss” is not a legal term and is rarely used. However, its meaning, as elaborated by legal theory, is that these are losses which are not a typical and normal result of a particular event; they are a product of chance. Nevertheless, they are still part of the chain of events and there is a link of causality between the event and the losses, albeit an indirect one. This interpretation is corroborated by case law. The Bulgarian Supreme Court of Cassation (“SCC”) had the opportunity to further clarify that when the damage (i.e. losses)  is also due to other factors beyond the control and will of the debtor, including for example the conduct of the creditor and/or a third party or force majeure, such damage (i.e. losses) shall be considered “indirect loss” and shall not be subject to compensation.

Therefore, the second head of loss – known as indirect loss and which is more akin to ‘consequential loss’ – is only recoverable to the extent that it is expressly contractually recognised between the parties. In this case, the parties should explicitly set out the contractual definition of ‘consequential loss’ and what exactly damages should be considered as such. It will not usually be a recoverable head of loss by law.

The parties may determine the content of the contract insofar as it does not contravene the mandatory provisions of the law and good morals, (Article 9 of OCA). However, regarding the limitation or exclusion of contractual liability between the parties, it should be noted that according to Article 94 of OCA, clauses in the contract which aim a priori to exclude or reduce the debtor’s liability for a non-performance committed intentionally or by gross negligence is prohibited and will be considered null and void.

Considering the abovesaid, in practice it is possible for wording including “indirect loss” (not “consequential loss”) to be inserted into clauses for exclusion or limitation of liability in documents such as insurance policies, and waivers. However, this wording is not used very often.

However, since the terms “indirect loss” and “consequential loss” are not recognized by Bulgarian law (see above), it is generally recommended to either refrain from using them altogether, or to include a precise and descriptive definition of the relevant term in the given legal document. Not doing so may create significant interpretational problems and room for dispute over the recoverability of a particular damage.

Most large-scale projects in Bulgaria are procured and/or advised by international players. Most are completed in line with international standards such as FIDIC, and the project documents and agreements are usually governed by English law. For this reason, the term “consequential loss” can be found in contracts relating to Bulgarian projects that are not subject to Bulgarian law.3. If so, what meaning is attributed to the words “consequential loss” in contractual exclusion clauses?

“Consequential loss” is not used in Bulgarian contractual documents; it is usually used in agreements governed by English (or other) law.

The usual meaning ascribed to “indirect loss” in Bulgarian contracts is loss which is not a direct and necessary consequence of the harmful event or contractual breach, and is not a typical or normally occurring result. These are losses which are not a typical and normal result of a particular event; they are a product of chance. Nevertheless, they are still part of the chain of events and there is a link of causality between the event and the losses, albeit an indirect one.

Large utility companies – such as the national gas operator (Bulgartransgaz), the national electricity company, transmission system Operator, – do not typically include clauses for exclusion of “indirect loss”. Instead, they tend to limit their clauses to damages occurring as a direct and immediate consequence of the breach, thus reiterating the wording of Article 82 OCA and its focus on direct loss.

Where clauses cover “direct and indirect losses”, they are likely to be interpreted as the totality of potential losses being covered.

This interpretation is likely for a number of reasons. Bulgarian legal doctrine recognises several interpretation techniques including literal interpretation, systematic interpretation, and logical interpretation. Under these principles, a Bulgarian court would approach the wording at its literal level until it reaches a satisfactory meaningful outcome. The use of a conjunction such as ‘and’ would lead the court to conclude that “indirect loss” should be considered as loss which is an extension to direct and immediate harmful consequences. Therefore, from a linguistic, logical, and contextual point of interpretation, the court would identify each head of loss in juxtaposition to the rest of the heads of loss and would identify a meaning of its own for each phrase or concept.

The court’s most likely interpretation would be that indirect loss is causally linked to the harmful event but is not an immediate (typical) consequence of it.

This reading would be corroborated by the established understanding of the legal doctrine and the case law that the concept of “indirect loss” is a type of loss that is caused by a particular event but is an extraordinary outcome of it.

Bulgarian law, case law and legal doctrine adopt a strict view on claiming damages which goes beyond direct and foreseeable consequences. For instance, Bulgarian courts are still very reluctant to award damages for loss of profit. Therefore, the impact of clauses covering “indirect loss” (or “consequential loss”) is yet to be seen and tested in the courts. Moreover, it is not likely to be recognised for the purposes of claims which are not damages claims.