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

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

No. The words “consequential loss” have no given or recognised meaning in Colombian law. It is not even found in the Civil Colombian Code (the “Code”).

Damages caused by breach of contract are regulated in article 1613 of the Code. Compensatory damages are split between actual damages (daño emergente) and loss of profits (lucro cesante). According to article 1614 of the Code, actual damage is the prejudice or loss that comes from not having fulfilled the terms of the contract, and loss of profit is understood to be the profit that is not received as a result of failing to perform the terms of the contract.

Article 1616 establishes that if wilful intent cannot be attributed to the party in breach of contract, the party at fault shall be liable for the damages that were foreseen or could have been foreseen at the time the contract was entered into. This article also provides that when damages were incurred with wilful intent, the party at fault will be responsible for all the damages that arose as an immediate or direct consequence of not having fulfilled the terms of the contract. 

The Code does not provide a list of characteristics of the damage which enable the innocent party to sue. Nevertheless, Colombian jurisprudence has clarified that in order to be recoverable, the damages must be:

  1. true;
  2. claimed by the person who suffered the loss; and
  3. lawful.   

Despite the fact that consequential loss is not covered by Colombian legislation, it is generally understood as a loss flowing from the breach – as opposed to the breach itself. 

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

Yes. Although consequential loss does not have a meaning in Colombian legislation, this type of term is widely used in the hydrocarbon and energy industry. Some examples of model contracts containing consequential loss clauses include:

Example 1

“Neither party shall be liable to the other in any case and under no other circumstance for any indirect, special or consequential damages”.

Example 2

“Indirect damages: Neither party will respond to the other for indirect, consequential or loss of profit”.

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

Colombian legislation has not attributed any meaning to the words “consequential loss”. The meaning given to the terms that reference consequential loss therefore depends on how they are defined in the contract.

The clauses discussed above show that “consequential loss” is widely understood in the energy sector to equate to all types of loss of profit (lucro cesante), as defined in Colombian Civil Law. However, this is not a meaning attributed by Colombian law. 

Loss of profit is a term developed by judicial interpretation. A widely accepted definition is: “the loss of profit not only includes the suppression of the income of money or things to the patrimony of the victim but also the suppression of all type of benefit that stops receiving, as long as it is susceptible of being evaluated pecuniary”.

When the term “consequential loss” is used, its meaning should be clearly defined in the contract. Pursuant to article 1616 of the Code, only direct damages are recoverable. Therefore, absent of a definition, the judge may interpret the will of the parties differently to what they intended when they entered into the contract.

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

There is no jurisprudence that refers to consequential loss clauses. However, Colombian legislation has a developed regime on limitation of liability clauses. 1 There are limitations liability clauses widely admitted by Colombian judges as those that determine quantum or a maximum amount for repairing in case of valid breach of the contract or any of its obligations; or those that establish a specific modality for the repair. (Judgment C-309 of 1996, C-663 of 1996, C-448 of 2002, C-1008 of 2010 of the Constitutional Court).

Freedom of contract underpins Colombian civil law. The Code expressly authorises contracting parties to modify the liability regime of their business. However, this is not an absolute freedom – it has always been subject to the general limits of contractual autonomy, especially public order, good custom and good faith. 2 The interpretation of the contracts is enshrined in articles 1618 to 1624 of the Civil Code. The two guiding principles that emerge from these provisions are: 1. The search for the common intention of the parties (communis intentio or voluntas spectanda). 2. Contractual good faith. However, the task of finding the true intention of the contracting parties is the traditionally subjective approach, in contrast to the objective approach, which seeks to privilege the external or declared will of the parties in the contract. National jurisprudence has indicated that the subjective prevails over the objective, based on the idea that the principle of the search for the real will of the contracting parties is fundamental within hermeneutical work and that the other principles and rules are subsidiary.

The courts will always deem a clause excluding liability for breaches with wilful intent as invalid as this is strictly forbidden under the Code. 3 Under Article 1522 of the Colombian Civil Code, the forgiveness of a future wilful intent is not admissible.

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

If the judge determines that the clause is valid, it is possible that the repair of the consequential damages may be denied. There is no jurisprudence that suggests that the existence of a consequential loss clause increases or lessens the probability of an injunction being granted. Colombian judges will examine the content of the claim on a case-by-case basis to determine if an injunction proceeds or not. This study will always be done by the judge, regardless of the existence or absence of a consequential loss clause.

Portrait of Daniel Rodríguez, LL.M.
Daniel Rodríguez, LL.M.
Partner
Bogotá