Serbia

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

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

The words “consequential loss” do not have a given meaning in Serbian law. 

The Serbian Law on Obligations (the “LO”) provides essentially two main types of damage that are recoverable in contractual and non-contractual relations: 

  1. pecuniary damage, which can be:
    1. ordinary damage (obična šteta);
    2. loss of profit (izmakla korist); and
  2. non-pecuniary damage (neimovinska šteta). 

Although all types of damage are recoverable, contractual claims have an additional requirement of foreseeability of the damage at the time of entering into an agreement. The court will consider whether the damage was foreseeable at the time of the conclusion of the contract as a possible consequence of the breach, taking into account the facts that the party in breach knew or should have known.

In the event of fraud, intentional non-performance, or non-performance as a result of one of the party’s gross negligence, the innocent party is entitled to recover the total damage (i.e. not only foreseeable damage), notwithstanding the special circumstances that caused the damage.

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

Since the term “consequential loss” has no given meaning in Serbian law, it is rarely, if at all, used in
contractual exclusion of liability clauses in agreements governed by Serbian law as its interpretation and application could lead to legal uncertainty. 

When used, the term “consequential loss” is used in contracts with foreign elements concluded in certain industries, including the energy, chemistry, and metallurgy sectors. For instance:
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 Serbian origin also usually contain exclusion of liability clauses, but these are generally related only to “indirect damage/loss” and “loss of profit” (see below). 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. 

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

The meaning attributed to the words “consequential loss” depends on the interpretation of those words in a contractual exclusion clause. 

There is no clear jurisprudence regarding the interpretation of the words “consequential loss” as this term is not commonly used in Serbian law. It would most likely be regarded as a type of “indirect loss”, but there are also no clear guidelines on the interpretation of “indirect loss” apart from court jurisprudence which is not always reliable as it is heavily focused on the interpretation of the term within the given facts of the case. Consequently, it is highly advisable for parties to define “consequential loss” or “indirect loss” in the contract if those terms are to be used in exclusion clauses.

The meaning of the term “indirect loss” has been encountered in: 

  • the Law on postal services 1 Law on postal services (Official Gazette of RS no. 77/2019), section on Responsibility of postal operator , Special Rules in of Freight Forwarding Companies 2 Special Rules in of Freight Forwarding Companies (Official Gazette of RS no. 99/2018), section on Responsibility of freight forwarder  etc;
  • various jurisprudence concerning the contracts in which the parties defined direct and indirect loss;
  • various articles by legal scholars who discuss whether “loss of profit” should be considered “direct” or “indirect” loss – there are different opinions in the legal literature. 3 Commentary on the Law on Obligations. [Slobodan Perovic; Dragoljub Stojanovic, D.; Slavko Carić; et al]  

The LO defines “loss of profit” as a type of damage recoverable under the law. The term “loss of profit” is also not defined but, unlike “consequential loss”, there is some helpful jurisprudence for this term.

On a general note, parties cannot exclude or limit liability when acting with intent or gross negligence (namera ili krajnja nepažnja). Exclusion or limitation of liability clauses for negligence (obična nepažnja) can be contested if these clauses result from a monopoly position exercised by the breaching party or from unequal relations (bargaining power) between the contractual parties.

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

Each clause is construed in accordance with the rules on interpretation of contracts provided by the LO. 

If a provision is clear – i.e. if there is no ambiguity as to its meaning – there is no need for interpretation and the provision applies as it reads. If a provision is unclear, the following criteria are taken into account:

  • the common intention of the parties;
  • principles of the law of obligations;
  • fair balance of the parties’ performance; and
  • if the provision is part of the terms and conditions drafted by one of the parties to the agreement, the rule of contra proferentem will apply and it will be construed in favour of the other party. 

The LO outlines the principles governing contractual relations – for example freedom of contract, good faith, and the duty to fulfil one’s contractual obligation (pacta sunt servanda). These principles are deemed mandatory by court jurisprudence and the court approaches those principles on their own motion, in parallel with the examination of the contractual and statutory provisions governing certain contracts. 

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

According to the Law on Enforcement and Security, when seeking an interim measure (privremena mera) for securing non-monetary claims, besides the requirement to establish a credible non-monetary claim, the applicant must also show:

  1. the existence of threat that the breaching party would otherwise prevent or significantly deter the occurrence of a breach; or
  2. that the measure is necessary to prevent threatened violence or irreparable damage. 

If a court considers the consequential loss exclusion clause (or other limitation/exclusion clause) to be evidence of potential irreparable damage that would occur as a result of breach of a contract, this clause might have an impact on the non-monetary claim for performance of a contractual obligation. Nevertheless, there is currently no jurisprudence that illustrates this position.  

Ivan-Gazdic-CMS-SRB
Ivan Gazdic
Partner
Belgrade
Picture of Nenad Kovacevic
Nenad Kovačević
Attorney-at-Law
Belgrade