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

No, the words “consequential loss” do not have a given meaning in Slovenian law. 

The Slovenian Obligations Code (Obligacijski zakonik, “OZ”) recognises the following types of damage as recoverable in contractual relations:

1. ordinary damage (navadna škoda) – a diminution of property;
2. loss of profit (izgubljeni dobiček) – a prevention of the appreciation of property, whereby only the profit that could justifiably have been expected given the normal course of events or given the special circumstances, but could not be achieved owing to the injurer’s action or omission, shall be taken into consideration.

The OZ does not explicitly distinguish between direct and consequential damage or loss. However, it imposes liability on the party breaching the contract for damage incurred relating to assets of the innocent party because of a breach of contract. Under the respective provision, physical damage caused to any other property of the innocent party due to a material defect, affecting the subject of a contract, can be claimed by the innocent party. Such damage is classified as reflex (i.e. indirect) damage (refleksna škoda).

When claiming the damage for breach of contract, the reimbursement of ordinary damage and loss of profit is limited to the extent that the debtor should have reasonably expected upon breach of contract as a potential consequence of the breach, considering the facts that were known or ought to have been known at the time of the breach.  

In the event of fraud, intentional non-performance or non-performance owing to gross negligence, the creditor is entitled to claim the total damage incurred due to breach of contract (i.e. not only expected damage), irrespective of whether the debtor knew of the special circumstances that caused the damage or not. 

The words “consequential loss” are not commonly used in agreements governed by Slovenian law, as the term is not explicitly recognised and has no given meaning under Slovenian law. 

Nevertheless, contractual exclusion of liability is common in commercial contracts in all industries including in the energy sector. The parties mostly exclude certain types of losses along with a liability cap. In addition, fairly often these clauses exclude loss of profit (izgubljeni dobiček), or loss of income due to breach of contract. Moreover, the parties also exclude damages by referring only to damages recognised by statutory law (e.g. reasonably predictable and direct damage) or by including a list of examples of excluded loss (in addition to the general exclusion), such as: 

• loss resulting from liability for employees
• damage to property
• product liability
• loss of profit
• loss of customers
• punitive damages
• lost profit
• damages to reputation or goodwill.

Alongside the exclusion of a type of damage, the contractual exclusion of liability clauses can also determine the maximum amount of compensation for damage incurred due to a breach of contract. These contractual provisions can be challenged, however, if the amount stipulated is clearly disproportional to the damage or if it is stipulated differently by law for an individual case. 

Nevertheless, no contractual exclusion of liability for intent or gross negligence can be agreed between the parties. Such a provision would be considered null-and-void. However, the court can also annul a contractual exclusion of liability for slight negligence if such an agreement derives from the breaching party’s monopoly position or in any way from the unequal nature of the relationship between the parties. 

As the term “consequential loss” is not explicitly recognised and has no given meaning under Slovenian law, no clear jurisprudence regarding the interpretation of the term exists. 

In general, consequential loss is excluded from the legally recognised loss as set out under energy-related contracts governed by Slovenian law. For example:

• Loss or Losses shall mean losses, liabilities, obligations, damages and reasonable costs and expenses (including, without limitation, reasonable attorneys' fees), but for avoidance of doubt excluding punitive damages, lost profit, damages to reputation or goodwill and consequential or indirect damages.  

The types of damage that may be excluded under a contractual exclusion clause including the words “consequential loss” would be decided by a court considering the following criteria:

• Should the breaching party reasonably expect the damage upon breach of contract as a potential consequence of the breach, considering the facts that were known or ought to have been known at the time of the breach; 
• Existence of adequate causation, as interpreted by Slovenian practice and theory; and
• Common purpose (i.e. business interest) of the contracting parties pursued by the exclusion clause.

Each clause would therefore be interpreted on case-by-case basis. However, the following types of damage would most likely be excluded in any case:

• Reflex damage (refleksna škoda) – damage incurred to any other property of the innocent party due to a material defect affecting the subject to a contract;
• Trust damage (škoda zaradi zaupanja) – damage resulting from any property disposition of the innocent party, which was made based on the trust that the subject of a contract is defect-free or that the breaching party fulfilled the contract without default (e.g. transport costs, storage costs, installation costs). Trust damage is a type of an indirect damage and can only be claimed under the liability for material defect; and
• Ordinary damage (navadna škoda) and loss of profit (izgubljeni dobiček) if it meets the above criteria.

It is therefore difficult to state which damages would likely be excluded under Slovenian law as “consequential loss” and existing case law does not provide a clear interpretation of the term. The parties should thus explicitly define what meaning shall be attributed to the words “consequential loss” when using them in a contract. If they want to exclude recovery of specific damages, such as loss of profits and additional expenditure caused by an initial breach, they should make this clear either in the consequential loss definition or by specifically excluding these losses separately. 

Pursuant to the OZ, each contractual clause is to be applied as it reads. The meaning intended by the parties is of primary importance when interpreting the content of individual contractual clauses. Should the parties wish to use a term in the contract which is not explicitly recognised by law, it is therefore advised that they explicitly define its meaning.

If a clause includes a term explicitly recognised by law, the statutory meaning assigned to it shall apply unless the parties did not explicitly define otherwise. In the event that the term “consequential loss” used in a clause is not explicitly recognised by law and was also not explicitly defined in the contract and the parties to the contract attached different meanings to it, the court would apply the mandatory interpretative rule of the OZ. This rule stipulates that when interpreting contentious contractual terms, their literal meaning is not necessarily decisive, rather a common purpose (i.e. business interest) of the contracting parties ought to be pursued and the provision understood in accordance with the principles of the law of obligations set out in the OZ. In this case, the court would conduct an evidentiary process to determine what the parties actually agreed upon and whether the agreement meets the principles of the law of obligations (i.e. equality of participants in obligations, the principle of conscientiousness and fairness, due diligence, the prohibition of abuse of rights, the principle of equal value duty, prohibition of injury).

Where the substance of the contract is not the result of mutual negotiation and the contract was concluded in pre-printed content or the contract was otherwise prepared and proposed by one party, the unclear provisions should be interpreted in favour of the other party. The rule is intended to benefit the weaker party and intervenes in cases where the stronger party “forces” its will on the other party by excluding the possibility of modifying a prearranged contract.

Considering the foregoing, the meaning of the term “consequential loss” and any other heads of loss included in a clause alongside consequential loss, would differ on a case-by-case basis. Given the above rules, the court could attach a different meaning to it in each case. 

Generally, they do not. Under Slovenian law a non-damages claim (i.e. claim for performance of specific obligation) does not depend on the occurrence of damage or the extent of caused damage. However, the case law on this topic is not settled.