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

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

No, Polish law does not contain a legal definition of consequential loss. This term is also very seldom used in the judicial practice of the Polish courts and has no clear meaning in Polish judicature.

The general principles of civil liability, including tort liability and liability arising from non-performance or improper performance of a contract, are set out in the Polish Civil Code 1 Journal of laws 2018, item 1025, as amended. (hereinafter referred to as the “Civil Code”).

Fundamental limits of damages under Polish law are defined in Article 361 of the Civil Code, according to which ‘a person obliged to pay damages shall only be liable for ordinary effects of an action or omission which the damage resulted from' 2 Article 361 § 1 of the Civil Code.  and ‘within the above-mentioned limits […] the redress of damage shall involve losses which the injured party has suffered [damnum emergens] as well as profits which it could have obtained, if no damage had been inflicted [lucrum cessans]’. 3 Article 361 § 2 of the Civil Code.

Conduct, damage, and ordinary causation constitute essential prerequisites giving rise to liability for damages under Polish law. It is worth noting that a simple causation, verifiable by a regular ‘but-for’ (sine qua non) test is not sufficient and needs to be followed by an assessment of its ordinariness. This assessment, made by a court in the proceedings, should be based on a thorough analysis of the facts of the case and should aim to determine whether the relationship between the action and the end result in question is usual and constitutes a normal cause of things. Both direct and indirect causes may be included in an ordinary causation and, therefore, lead to their recovery by the injured party. The remoteness of causation (direct or indirect causes) may be useful to identify direct or indirect losses, nevertheless under Polish law both such losses are recoverable provided that they are included in ordinary causation. The relationship between each cause and result needs, however, to be usual, otherwise the entire causation would not be considered ordinary and the loss (end result) would not be recoverable. As a rule any parties’ awareness of causation is irrelevant for the recoverability of a loss. However, it is worth noting, that in certain cases if the party causing damage knows that his or her actions will cause specific damage such party may be held liable even though the causation was not ordinary. Moreover, as Article 361 of the Civil Code is believed to be a non-mandatory provision, the parties to the contract can broaden the scope of recoverable damage by excluding the ordinary causation requirement.

Recoverability of a loss of profit (lucrum cessans) is dependent on the degree of probability that a certain profit may have been gained. According to the Polish courts, such a probability needs to be close to certainty for the loss to be recoverable.

Ordinariness of causation is not clearly defined by the Civil Code and leaves a degree of flexibility to the courts. As a result, it is not impossible that in certain circumstances a loss classified by English courts as a ‘consequential loss’ would be recoverable under Polish law. The courts should decide on whether the causation is ordinary on the basis of any data or information available at the date of judging. This assessment, should be based on a thorough analysis of the facts of the case. The court should not limit its assessment to information available at the date of action (breach) or at the time the contract was entered.

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

Yes, we do encounter clauses excluding liability for ‘consequential loss’ in contracts concluded in various industries, including the energy, chemistry, and metallurgy sector. Usually these clauses are based on commonly available international standards such as FIDIC. Below please find some examples of limitation of liability clauses present in the industry practice:

  1. “The Parties shall be liable for due performance of their obligations under the Contract, and for damage caused by undue performance or non-performance thereof, excluding loss of profits (except as loss of profits may be included in liquidated damages hereunder), consequential damages and indirect actual losses. Consequential damages and indirect actual losses are: the damages and/or liquidated damages payable under contracts between the given Party and its contractors other than the second Party; financial costs, such as interest, bank fees, and depreciation; the claims of Financing Parties in relation to financing the Owner’s business; and loss of income or loss of production”
  2. “In no event (subject to the obligation to pay liquidated damages) will the Parties be liable for indirect and/or consequential losses such as, without limitation, loss of profits, loss of income, loss of business, loss of production and/or claims from the Party’s customers”
  3. “Except in cases of fraudulent actions, negligence and/or wilful misconduct by either PARTY, neither PARTY shall be liable to the other PARTY for loss of profit, loss of any contract, or for any consequential losses or damages which may be suffered by the other PARTY in connection with this CONTRACT”

Contracts of Polish origin also do usually contain exclusion of liability clauses, but these are generally related only to loss of profit (lucrum cessans). Such an exclusion of liability clause is in general considered to be sufficient when the parties wish to exclude their liability for any possible loss of profit or loss of income and, therefore, certain losses that would be classified as consequential loss under the laws of England and Wales can be excluded.

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

As there is no meaning given by Polish law to the term consequential loss, it is recommended that each contract containing exclusion of liability clauses, referring to this term, define it independently.

Unfortunately, Polish judicial practice has not developed any clear and uniform meaning for consequential loss. Therefore, each definition agreed upon by the parties to a contract should be as descriptive and as detailed as it is possible. The same approach is recommended in relation to other heads of loss, i.e. indirect loss, special loss etc.

Nevertheless, as consequential loss is very similar to indirect loss (both are presented in opposition to direct loss), the Polish courts might somehow refer to the meaning of direct and indirect loss when deciding about consequential loss. Polish legal doctrine developed at least three concepts of direct and indirect loss. First, applying a subject criterion, a direct loss would refer to the person directly affected by it and indirect loss would affect other persons. Second, applying a causation criterion, a direct loss would refer to damage resulting from a direct causation (causa proxima) and indirect loss would refer to a more remote causation. Third, a direct loss may be defined as a result of a violation of a good/interest directly affected by a specific event and indirect loss would result from violation of other goods/interests of the injured party.

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

Lack of sufficient jurisprudence may constitute a major problem in a case of a dispute arising in relation to a contract concluded under Polish law, containing an exclusion of liability clause referring to consequential loss or other common-law-based heads of loss, and not defining this term in a detailed way.

The court’s actions would still aim to establish whether there is an ordinary causation between the party’s action and the end result and, with respect to loss of profit, whether probability of a profit was sufficiently high. Only after determining the scope of recoverable loss would the court try to understand the parties’ intentions behind the exclusion of liability clause. As the concept of consequential loss is not based on the laws of Poland, the competent court may also decide to use the services of an independent expert specialising in common law. It is worth noting, however, that Polish legal doctrine and judicature indicate that contractual deviations from the statutory liability model cannot be interpreted extensively. The court would always need to examine what was the common intention of the parties and the aim of the contract rather than its literal meaning. If it is possible to adopt different interpretations, the court shall adopt the interpretation more beneficial for the injured party.

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

As the jurisprudence of Polish courts in relation to consequential loss is very limited, it is not clear whether an exclusion of liability clause referring to consequential loss would have an impact on non-damage claims, and particularly requests for injunction.

In general, according to Article 7301 of Polish Code of Civil Procedure 4 Journal of laws 2018, item 416, as amended. a request for a preliminary injunction can be made by each party or participant to proceedings, if the party/participant substantiates his or her claim and legal interest in the injunction. If a claim concerns a head of loss excluded in the contract, the other party would have the right to appeal against the injunction.

Mr Jan Radziuk
Portrait of Wojciech Szopinski
Wojciech Szopinski
Portrait of Piotr Ciolkowski
Piotr Ciolkowski
Partner
Warsaw