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

There is no reference to, or definition of, the term “consequential loss” in the Romanian Civil Code (the “RCC”). 1 Codul Civil din 17 iulie 2009 (Legea nr. 287/2009).

In the event of a breach of contractual obligations, Article 1530 of the RCC provides a “creditor” (i.e. the innocent, or wronged, party) with an entitlement to damages that compensate it for losses caused by the “debtor” (i.e. the defaulting party, or party in breach of its obligations). Importantly, in establishing whether a loss is caused by a breach, Article 1530 confirms that the creditor is only entitled to damages for such losses that are “the direct and necessary consequence” of the breach. 2 This (and all other translations in this chapter) is an unofficial translation.

With regards to types of damages that are recoverable at law, Articles 1531 and 1532 of the RCC clarify that:

1. the creditor is entitled to “full compensation” for the damage suffered as a result of the relevant breach.
2. this includes “actual” loss suffered (damnum emergens); as well as deprived benefit (lucrum cessans). 3 Such deprived benefit may include, but is not necessarily limited to, loss of profit.
3. full compensation  also includes compensation for non-pecuniary damage.
4. future damages shall be taken into account, and damages in connection with “loss of opportunity” arising out of a breach may also be recoverable. 4 Damages for loss of opportunity may be recovered in proportion to the prospect of success of that opportunity (Article 1532).

Further, in connection with all types of loss and damage, Article 1533 of the RCC provides that a debtor is only liable for damages that could have been foreseen as a result of the relevant breach at the time the relevant contract was executed. By way of exception, a debtor is also liable for unforeseen damages where the relevant breach was “intentional” or due to a “serious fault”, akin to the concepts of gross negligence and wilful misconduct. However, such damages still need to be “the direct and necessary consequence” of the relevant breach, in accordance with Article 1530, in order to be recoverable. 

The reference to “full compensation” in Article 1531 above suggests that, as long as a loss was foreseeable at the time the contract was executed, and as long as the loss arose as a direct and necessary consequence of the breach, the loss is recoverable at law, regardless of whether it falls within a dictionary definition of “consequential”.

This is supported by a ruling from the Supreme Court of Justice, which found that parties to a contract were not necessarily required to expressly provide for price indexation by to the inflation rate as part of a contractual price payment obligation, in order for the creditor to be entitled, in the event of breach, to compensation for both the direct loss (the contractual price), as well as the loss of benefit (updated price by reference to the rate of inflation). 5 Supreme Court of Justice, commercial section, decision no.562/1999

Parties to a contract are free to agree to clauses excluding or limiting liability (pacta sunt servanda), so long as this is not contrary to public policy, accepted principles of morality, or limits imposed by law (Article 1169 of the RCC).

As a result, the entitlement to “full compensation” under Article 1531 of the RCC (see above) may be limited through contractual exclusion of liability clauses, except that the parties cannot limit liability for:

1. damage caused by a default committed intentionally or by gross negligence; or
2. damage caused to physical or mental integrity or health (Article 1355 of the RCC).

The parties can still limit liability for, for example, damage caused by imprudence or negligence.

In practice, standard contracts (such as FIDIC used in Romanian infrastructure projects 6 FIDIC sampled used by Regional Directorate of Road Infrastructure Brasov. ) or privately negotiated deeds often include clauses limiting or excluding contractual liability. Similarly, local Romanian drilling and wells services contracts are adapted from international services contracts, hence it is customary to negotiate around exclusion of liability clauses. In contrast, Romanian petroleum concession agreements are not sophisticated enough to contain exclusion of liabilities clauses. Most of the concession agreements were concluded in the late 1990s and represent the position under the Romanian Petroleum Law.

The terms “consequential” and “indirect” loss are commonly used in contractual exclusion of liability clauses, in particular in commercial contracts. In the oil & gas sector, the Romanian market will often contract on the basis of the AIPN model form Joint Operating Agreement, which includes provisions concerning “consequential loss”. 

In the absence of contractual definition or clear jurisprudence on this issue, the meaning of “consequential loss” remains ambiguous and open to arguments from the parties.

Indirect losses are arguably those losses that do not arise as a “direct and necessary consequence” of a breach, such that, pursuant to Article 1530 of the RCC (see above), a debtor “will not be responsible for repairing the indirect damages that would have normally occurred without his guilty act” in any event. 

The RCC maintains, as a general rule on contract interpretation, that a contact shall be interpreted according to the intention of the contracting parties. 

The RCC also provides that a contract shall be interpreted in favour of the debtor (as above, the party claimed to be in breach of its obligations) (in dubio pro debitoris), and that contractual exception clauses shall be subject to a restrictive interpretation (exceptio est strictissimae interpretationis).

5.1 Specific performance

Under Article 1539 of the RCC, 7 Article 1539 of the RCC states: “Addition of the penalty to the execution in kind. The creditor cannot claim both the execution in kind of the principal obligation and the payment of the penalty, unless the penalty has been stipulated for non-fulfilment of the obligations in time or in the established place. In the latter case, the creditor may request both the execution of the principal obligation and the penalty, if he does not waive this right or if he does not accept the performance of the obligation without reservation.” a party to a contract is entitled to seek a court order for the compulsory performance by the defaulting party of its obligations. The order for specific performance will not affect the ability of the injured party to require the party at fault to repair the damages. A consequential loss exclusion clause, which limits the scope of recoverable damages, is unlikely to affect or restrict a party’s primary obligation to remedy the contract. Hence, it is unlikely that a consequential loss exclusion clause will have an impact on this remedy. 

5.2 Provisional injunction

A provisional injunction order has the effect of preserving the status quo of the subject matter of the dispute up until a decision on the merits has been reached by the court, by preventing the alteration of the parties’ rights that may be affected until the decision on the merits is provided. Since a provisional injunction does not relate to monetary claims, it is unlikely that a consequential loss exclusion clause, which limits the scope of recoverable damages, will have an impact on a party’s right to seek this remedy.

5.3 Provisional seizure

Under Article 951 of the RCC, 8 “Provisional seizure consists in the unavailability of the movable and / or the movable property of the debtor in possession of it or of a third party for the purpose of their recovery when the creditor of an amount of money obtains an enforceable title.” provisional seizure may be established in order to preserve compulsory execution against the movable or immovable assets in respect of a monetary claim, or a claim convertible into money. A provisional seizure order has the effect of freezing the defendant’s assets until a decision on the merits has been provided by the court. Depending on the type of loss in question, a consequential loss exclusion clause could have the effect of negating the existence of a monetary remedy. In those circumstances, a consequential loss exclusion clause could have a negative impact on a party’s right to this remedy.