CMS Guide to Consequential Loss in Peru

No. The words “consequential loss” have no given or recognised meaning in Peruvian law. However, “indirect loss” does have a recognised meaning, as explained below.

The general rule in contractual civil liability is that damages arising “directly and immediately” from the breach of obligations, are claimable. [1]  Therefore, by fundamental causality, in accordance with article 1321 of the Peruvian Civil Code, the only claimable damages are “direct damages”. The right to claim indirect or consequential damages requires an express contractual undertaking. 

Yes. Peruvian law has been influenced by common law, and hence, many common law expressions and concepts are invoked when structuring and drafting contracts.

It is common for certain contracts, especially those entered into with major foreign service providers, or referring to the purchase and sale of stock, joint operation agreements (“JOAs”), operation and maintenance, among others, to exclude “consequential damages”.

“Consequential damages” can be associated with: (a) “indirect damages”, which are not claimable under Peruvian law except if otherwise expressly agreed under the agreement; or (b) with “remote damages”, which are damages which were not reasonably envisaged when entering into the contract and also are not claimable under Peruvian law except if otherwise expressly agreed under the agreement.

Beyond the names that the parties may give to certain concepts through the contract, it is necessary to compare the assigned meanings with the appropriate legal regime.

Civil liability for non-performance of obligations is structured under two major premises:

• Gravity of the negligent act or omission, in the sense that the level of recoverable damages depends on whether the breach is due to minor negligence, gross negligence or wilful misconduct:
  • In the first case (minor negligence), the defaulting party is only liable for the foreseeable damages which could be anticipated at the moment of entering into the contract, either by the declarations in the agreement itself, by the nature of the contract or in response to what is reasonable under the circumstances. The liability then may be limited and even exonerated;
  • In the second case (gross negligence or wilful misconduct), there is unlimited liability for all damages, foreseeable or not, representable or not. Any agreement which seeks to exclude liability for gross negligence or wilful misconduct will be null.
• Compensatory damages are estimated on the basis of predictability: in minor negligence, the defaulting party must compensate for the foreseeable damages. However, if there has been gross negligence or wilful misconduct, the defaulting party must legally compensate the injured party for all damages caused, regardless of whether or not they could have been foreseen.

In view of the above, an agreement that limits or exonerates liability will be valid and enforceable if the breach is merely culpable (a minor negligence). If the breach is due to gross negligence or wilful misconduct, any limitation would be contrary to the mandatory rule of unlimited liability, structured on causality as opposed to predictability.

We must also note that, as only damages arising “directly and immediately” from the breach of obligations are claimable under Peruvian law, damages that constitute a “loss of profit” must comply with fundamental causality in order to be recovered. In that sense, consequential or indirect loss of profits are not recoverable except if otherwise expressly agreed under the agreement.

Consequential loss exclusion clauses do not have an impact on non-damages claims under Peruvian law.