CMS Guide to Consequential Loss in Colombia

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”).

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

The article 1616, indeed, establishes that if a willful intent cannot be attributed to the debtor, he is liable for the damages that were foreseen or could have been foreseen at the time of the contract, and that only when incurred in a willful intent will be responsible for all the damages that were immediate or direct consequence of not having been fulfilled the obligation.

The Code has also not determined the characteristics that the damage must have so that it can be sued. Nevertheless, the jurisprudence and doctrine are those who have defined the elements that the damage must have to be considered as such: It must be (i) true (as opposite to casual or possible damages), (ii) personal and (iii) unlawful.

However, despite the fact that the term is not found in Colombian legislation, it is generally understood as a loss arising from the results of damage rather than from the damage itself.

Yes. Although this term does not have a meaning in the Colombian legislation, this type of term is widely used in the hydrocarbon and energy industry sector. There are model contracts where the following clauses are generally included:

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”

Example 3

“Except for the event of gross negligence or willful misconduct, if there are any claims of damages from the SENDER consisting of loss of profits, this must not exceed twenty-five percent (25%) of the value that ECOPETROL is obliged to compensate the SENDER under this numeral”.

As we have been explaining, the Colombian legislation has not attributed any meaning to the word “consequential loss”. Hence, the meaning depends on what the parties define in the contract.

In the clauses discussed above, it can be observed that “consequential loss” is understood as the loss of profit (lucro cesante) in Colombian Civil Law.

The loss of profit is a figure developed by the doctrine, 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”.

However, it is important to remember that according to article 1616 of the Civil Code only direct damages are recoverable.

Therefore, it is advisable that when the term is used, its meaning is written in the signed contract, otherwise the Colombian judge may perform a different interpretation from the will of the parties.

Also, when Colombian law is chosen as the governing law, it is important to highlight that no indirect damages can be claimed. Therefore, other kind of damages such as punitive damages are not recognized under local legislation.

The Colombian legislation does not attribute any meaning to the word “consequential loss”. However, it has a developed regime on the liability limitation clauses.

Contractual freedom as an expression of private autonomy constitutes a priority principle of Colombian civil law. The Civil Code expressly authorizes the contracting parties to modify the liability regime in their business. However, this freedom has never been absolute, on the contrary, it has always been subject to the general limits of contractual autonomy, especially public order, good customs and good faith.

The Colombian judge will always determine an invalid clause if the act of not responding for a wilful intent has been agreed. This pact is prohibited in our legal system.

As mentioned, any loss to be claimed under Colombian law for a breach of contract must be proved to be true, direct and personal.

If the judge determines that the clause is valid, the repair of the consequential damages will possibly be denied.

Since we don’t have a legal meaning for “consequential”, another possible discussion would be the meaning of the word “consequential”. If for any reason its is considered equivalent to “not true” or “not actual”, or if it is considered as not related to the breach (indirect) any claim under such title will be denied.

When choosing Colombian law as the governing law, it is highly recommended to use the categories legally recognized in the legislation.