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

The words “consequential loss” do not have a given meaning in Portuguese Law, nor have the Portuguese courts elaborated or recognised such losses as a specific category of loss. 

Under Articles 562 and 564 of the Portuguese Civil Code (“the PCC”), a party causing loss or damage to another has the obligation to compensate the injured party for damage suffered (“danos emergentes”) and loss of profits (“lucros cessantes”) that the non-defaulting party probably would not have suffered if the breach of the contract had not occurred. 

The PCC does not define or make a specific reference to “indirect loss”. Scholars define indirect loss as loss that is indirectly caused by the breach. It is an issue of causation. As such loss is not directly caused by the breach, it is in principle not recoverable in damages.

Due to use of the term “consequential loss” in international contracts and the influence of contracts subject to common law, there are examples of Portuguese contracts that exclude consequential loss. 

It is very common to find clauses excluding liability for “consequential loss” or “indirect and consequential loss” in insurance contracts and in energy industry agreements. These exclusions are also common in cases of mere negligence. Examples of typical clauses regarding this matter include:

Example 1 – Power purchase agreement 

Except as otherwise provided in this Agreement, neither Party shall be liable to the other for any indirect, special, incidental, consequential damage or economic loss, with respect to any claim arising out this Agreement, whether in contract, tort, strict liability or otherwise.

Example 2 – Engineering, procurement and construction agreement 

Neither Party shall be liable to the other by way of indemnity or the reason of any breach of the Contract or of any statutory duty or by the reason of tort (including negligence) or otherwise, for any indirect or consequential loss or any indirect or consequential damage whatsoever, or for any loss of profit, loss of use, loss of revenues, costs of replacement power, increased costs of operation, loss of production, loss of data, loss of finance, loss of opportunity or any pure economic loss that may be suffered by the other.”

Example 3 – Operation and maintenance agreement

Neither party shall be liable in any circumstances to the other party for any consequential loss however caused in connection with the performance or non-performance of its obligations under this Agreement, except if the loss is a direct result of physical damage to the installation caused by wilful default of one of the parties.

Neither Portuguese Law nor scholars define the words “consequential loss”. The meaning of the words “consequential loss”  is based on interpretation of the contract. 

Nevertheless,  “consequential loss” is often used to signify indirect or derivative damages, meaning damages that are an indirect cause of the breach of the contract. 

The validity of consequential loss clauses has been the subject of debate, as the PCC considers as null and void a clause by which a non-defaulting party renounces its legal rights and remedies for breach of contract, such as the right to be compensated. 

Notwithstanding their restriction in the PCC, the Portuguese courts tend to accept the validity of these clauses, under the ‘autonomy of the will principle’ (“princípio da autonomia privada”), if the exclusion or limitation of liability does not constitute a breach of duties imposed by public order provisions. However, the applicability of this principle is excluded from circumstances where the breach of the contract was caused by wilful misconduct or gross negligence. 

In Portugal, the courts draw the line between:

1. wilful misconduct and gross negligence; and
2. mere negligence.

In (1) the exclusion clauses are invalid, in (2) those clauses are accepted. The autonomy of the will principle has the limitation of public order where the distinction between (1) and (2) is relevant. If the losses arose due to slight negligence, the limitation or exclusion of liability will be deemed valid.

There is no specific Portuguese case law that addresses the interpretation of consequential loss clauses. 

The Portuguese courts have considered and provided guidance on the validity of contractual exclusion clauses. 1 For instance, Case 01A3321, Supreme Court of Justice 13-02-2001; Case 087882, Supreme Court of Justice 9-05-1996; Case 10502/16.1T8PRT.P1, Oporto Second Instance Court (Tribunal da Relação do Porto) 22-10-2018 – all available in www.dgs.pt.

In relation to the interpretation of exclusion clauses, the principles of interpretation of contracts (contractual declarations) apply, which are:

1. a declaration of contractual intent shall have the meaning that any standard recipient of a declaration, placed in the position of an actual recipient, may deduce from the behaviour of the declarant, unless he or she cannot reasonably rely upon such behavior.
2. whenever the recipient knows the actual will of the declarant, the declaration made shall be interpreted in the light of such will.
3. in case of doubt, the declaration shall have the meaning that is the less grievous for the grantor, in non-valuable contracts (gratuitous contracts), or that ensures a better balance of the considerations, in valuable contracts (onerous contracts).
4. in formal contracts the declaration shall not be valid if its meaning does not minimally correspond to the wording of the contract, albeit imperfectly expressed; such meaning may be valid, however, if it corresponds to the real will of the parties and the reasons determining the form of the contract do not oppose such validity.

The parties may choose to define the term “consequential damages” in the contract, but may also choose to give examples. For example, the O&M contract clause below defines the concept of consequential loss by way of examples:

“Consequential Loss” means in relation to a breach of this Agreement any indirect or consequential loss (including, without limitation, loss of production, loss of profit, loss of revenue, loss of contract, loss of goodwill, liability under other agreements or liability to third parties) resulting from such breach and whether or not the party committing the breach knew or ought to have known that such indirect or consequential loss would be likely to be suffered as a result of such breach and includes the payment or repayment of any amounts (or any acceleration thereof) to lenders to, or creditors of, the Operator and/ or the Owner from time to time (including, without limitation, to the Lenders under the Finance Documents) but excludes, for the avoidance of doubt, the cost to the Owner of obtaining the Service (or any Addition Services which the Operator has agreed to provide) from third party”.

There is no clear guidance under Portuguese law whether such examples should (i) be treated as expanding the scope of “indirect or consequential loss” to what would otherwise be considered “direct loss”, or (ii) whether the words in brackets would be treated as only covering such losses so far as they were an “indirect loss” and not cover direct losses having the same description.

There is no identified case law that establishes a direct connection between the granting of an injunction or of a specific performance order whenever the contract contains a limitation or exclusion of liability clause.

According to the Portuguese Civil Procedure Code, a party seeking an injunction needs to establish that:

1. the party has a claim against the other party.
2. there is a well-founded risk of suffering damage.
3. the damage will be severe and difficult to repair.
4. the damages caused by the granting of the injunction do not considerably exceed the losses to be prevented by the injunction.

While assessing requirement (3), there is no reason why the court should not take into consideration the existence of the limitation or exclusion clause. However, there is no specific jurisprudence on the issue.