Law and regulation of consequential damages clauses in the energy sector in Chile

1. Do the words “consequential loss” have a given meaning in law?

No. The legal term “consequential loss” has no given or recognised meaning in Chilean law.

Chilean law only recognises three classes of damages caused by breach of contract: direct loss (damnum emergens), loss of profit (covers future losses and loss of profits), and moral damages.

All these damages must be a direct result of breach of contract, in accordance with article 1558 of the Chilean Civil Code (“the Code”), or a wrongdoing, under articles 2314 and 2329 of the Code.

Therefore, Chilean law does not consider consequential losses or indirect damages derived from breach of contract to be reparable.

The general understanding is that indirect losses are those caused by a remote circumstance, not attributable to the defaulting party. Indirect loss is an issue of causation rather than foreseeability. Losses caused indirectly do not fall within the three classes of damages and are not recoverable in damages. 

2. Are the words “consequential loss” used in contractual exclusion of liability clauses?

Despite its lack of recognition in Chilean law (see 1. above), commercial agreements (e.g. SPA, SHA, EPC, etc.) generally include exclusion of liability clauses for “consequential loss”.

These agreements typically include clauses similar to the following:

“The Indemnitor’s liability is limited to direct actual damages only, such direct actual damages will be the sole and exclusive remedy and all other remedies or damages at law or in equity are waived. No Indemnitor shall be liable for any claim for indemnification pursuant to Sections 8.2 or 8.3 for any consequential, incidental, punitive, exemplary or indirect damages, loss of profits, moral damages or other business interruption damages”.

3. If so, what meaning is attributed to the words “consequential loss” in contractual exclusion clauses?

Chilean law lacks a meaning attributed to “consequential loss”, so the definition of this term depends on the context of the contract and the intention of the parties.

In general, parties understand “consequential loss” to be similar to indirect loss. None of those damages are subject to compensation under Chilean law, as they are not direct causes of breach of contract.

If the parties do not define “consequential loss” in the contract, the MOU or other negotiation documents, it is highly probable that the law will deny compensation for these damages, because it is not a type of damage recognised in Chilean law. In this respect, the “consequential loss” clause may be interpreted as merely reinforcing the position at law that indirect losses may not be the subject of a claim for damages.

4. Where a clause includes other heads of loss alongside consequential loss, how will the law approach such clauses?

We are not aware of any decision of the Courts of Chile or national arbitration related to the interpretation of “consequential loss” clauses in the context of a contract.

The Chilean Civil Code does not have special rules for the interpretation of limitation or exclusion of liability clauses. However, doctrine maintains that these clauses must be interpreted narrowly, due to their exceptional nature with respect to the general principle of liability.

In Chilean Contract Law, the parties are free to include in the contract any provision related to an exclusion of damages, with some exceptions. For example, exclusion of damages may not include: provisions that exempt the breaching party from all liability in cases of damages related to the physical integrity or the inherent rights of the person; liability in cases in which the breaching party committed wilful misconduct or gross negligence; waiving the liability of a breaching party who committed unlawful acts or committed breach of statutory duties. 

5. Do consequential loss exclusion clauses have an impact on non-damages claims?

It is unlikely that a consequential loss exclusion clause would have an impact on non-damages claims.

In Chilean law, damages claims are independent of the legal actions related to non-damages claims, as a consequence of breaching a contract.

Chilean law recognises at least three remedies in cases of breach of a contract: specific performance of the contract; termination of the contract for specific circumstances; and compensation of damages in accordance with article 1489 of the Chilean Civil Code.

Therefore, consequential loss exclusion clauses would have no impact on non-damages claims of this nature.

Portrait of Luis Felipe Arze
Luis Felipe Arze, LL.M
Partner
Santiago
Portrait of Rodrigo Campero
Rodrigo Campero, LL.M.
Partner
Santiago
Portrait of Hugo Ojeda
Hugo Ojeda
Associate
Santiago