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

The Swiss Code of Obligations (“CO”) does not include a definition for the terms “consequential loss”, “direct loss” and “indirect loss”. Under Swiss law, losses are generally recoverable if they are caused by a breach of contract or a breach of law, and if they meet the test of adequate causation. Depending on the case, there is no liability if a party can prove that no fault (intent or negligence) is attributable to it. These and other principles regarding the recoverability of losses are governed by articles 97 et. seqq. of the CO.

Yes. Contractual exclusions of liability clauses for “consequential losses” as well as for “indirect losses” are common in commercial contracts, in particular in contracts written in English. The exclusion of certain types of losses, often combined with a limitation of the liability to gross negligence and fault or with a liability cap, is common among all industries. 

Certain clauses only exclude specific “consequential losses” – such as loss of profit or loss of production – while others explicitly exclude all indirect and consequential losses.

Some clauses just exclude any “consequential and indirect losses”. Other clauses combine the general exclusion of “consequential and indirect losses” with a non-exhaustive list of examples of excluded damages, such as: 

• loss of profit
• loss of income
• loss of production
• loss of customers 
• loss of business opportunities
• loss of contract
• loss of use
• loss of data
• additional financial costs.

In view of the lack of a clear legal definition of the terms “consequential loss” and “indirect losses”, as well as the tendency of Swiss courts to interpret these terms narrowly, it is recommended to add, in addition to the general exclusion of “consequential and indirect losses”, a non-conclusive list of those losses which the parties particularly wish to exclude (e.g. loss of production, loss of profit).

Under Swiss law, in particular in business-to-business contracts, over-reaching limitation of liability clauses will not be entirely invalid, but only cut back to the extent permitted by the mandatory Swiss law.  

As mentioned above, there is no legal definition of the terms “consequential losses” and “indirect losses” and Swiss courts generally interpret these terms narrowly.

Regarding the term “indirect losses”, some years ago, the Swiss Federal Supreme Court decided that the proximity of the causal link is the right criterion for distinguishing between direct and other losses. 1 Decision no. 133 III 257 dated 28 November 2006.  However, this criterion is vague. In fact, in the case decided by the court, a pet owner bought a new parrot which suffered from a hidden disease. The parrot later infected all the other parrots owned by the purchaser and they subsequently died. According to the Swiss Federal Supreme Court, the death of the other animals qualified as a direct loss since the causal link between the disease of the purchased parrot and the infection of the other parrots was “sufficiently close”.

In view of this very broad interpretation of the term “direct loss”, excluding any “indirect losses” might not limit a party’s liability as intended.

Regarding the term “consequential losses”, the term is often used in case law and doctrine with respect to sales and work contracts, specifically with respect to the delivery of defective goods. The term refers to the damage to other goods of the purchaser which is caused by the defect of the goods delivered under the sales or work contract. Accordingly, in the example mentioned above, the exclusion of “consequential losses” would probably have excluded the liability of the seller for the death of the other parrots. With respect to other damages (e.g. a loss due to delay in delivery), the seller’s liability will probably not be limited.

When it comes to agreements other than sales and work contracts, both terms – "indirect losses" and “consequential losses” – have no clear meaning. In that case, a Swiss court might conclude (as the Supreme Court did in a mandate agreement between a client and an architect 2 Decision no. 126 III 388 dated 18 July 2000. ) that a clause excluding “indirect and consequential losses” is not sufficiently clear to go beyond the default rule of the CO, according to which liability is limited to those losses which have an adequate causal link to the damaging event.

Accordingly, if there is any doubt as to whether a particular loss will be caught by the mere exclusion of “indirect or consequential losses”, a non-exhaustive list of specific categories of losses should be added to the wording.

Due to uncertainty about the damages/losses that would actually be encompassed by an exclusion of “indirect and consequential losses”, as mentioned above, parties often aim to specifically describe the types of losses they wish to exclude, often by including a list of examples.  

If it is clearly stipulated that the list is not exhaustive, this should be accepted by the Swiss courts. However, for the reasons explained above, it might still be difficult to argue that, beyond the losses expressly listed, further losses fall under the categories of “consequential and indirect” losses. 

In case of ambiguities, the principle of in dubio contra stipulatorem applies unless a contract and its wording was duly negotiated between the parties.

No, Swiss law generally provides for an action for specific performance whether or not damages are recoverable.