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

The wording “consequential loss” itself does not explicitly exist under Austrian law. Nevertheless, Austrian law uses the concept of Folgeschäden (literal translation “consequential damage”) to define damages which do not result directly from the damaging act, but only arise indirectly from an infringement of legal rights. However, as Folgeschäden is not explicitly defined in the Austrian Civil Code (ABGB), there is no clear and uniform demarcation of what specific damages fall under the definition of Folgeschäden. The existence of Folgeschäden has to be assessed casuistically – a myriad of decisions of the Austrian Supreme Court provide guidance here. Examples include: damages for loss of earnings due to a cessation of operations caused by construction errors of a building or machine (the damage in the building/machine itself caused by the construction error would be direct damage under Austrian law ); 1  or the occurrence of water damage or mould due to a faulty renovation of a building 2 .

In order to be recoverable, Folgeschäden must pass the general test of adequate causation and must result from an unlawful and culpable damaging act. The general prerequisites for the recoverability of damages (including Folgeschäden) are set out in Sections 1293 et seq. of the ABGB and are heavily influenced by numerous Austrian Supreme Court decisions which, although not binding, are generally followed in the lower courts.

Yes, an exclusion of “consequential losses” in contracts is commonly used in Austria in a variety of industries including, but not limited to, energy. The precise wording of such exclusions varies and is mostly dependent on the nature and the size and importance of the contract. While extensive liability limitation regimes are found in elaborate contracts that, in most cases, clearly define which damages shall be recoverable and which shall be excluded, some examples of language used in more basic contracts in the energy sector include:

• Energy contract: Liability for indirect damages and consequential damages, regardless of the legal basis on which they are based, as well as for loss of profit is excluded. (Die Haftung für mittelbare Schäden und Folgeschäden, gleich auf welcher Rechtsgrundlage diese beruhen, sowie für entgangenen Gewinn wird ausgeschlossen.)
• EPC contract: Liability for consequential damages, especially loss of production and loss of profit, is excluded by mutual agreement. (Die Haftung für Mangelfolgeschäden, insbesondere Produktionsausfall und entgangenen Gewinn, wird einvernehmlich ausgeschlossen.)

In business-to-business contracts, an exclusion of liability: (i) for intent is void; (ii) for slight negligence is permissible; and (iii) for gross negligence is generally permissible if it is not extremely unjust or immoral (sittenwidrig). Such immorality applies to cases of “blatant gross negligence” (krass-grobe Fahrlässigkeit). The same is generally applicable to business-to-consumer contracts, with the exception that an exclusion of liability for gross negligence on the part of the business is void.

Often companies also stipulate such limitations of liability in general terms and conditions (Allgemeine Geschäftsbedingungen). In business-to-business transactions, clauses on the exclusion or limitation of liability are generally only effective to the extent that their conclusion or application in a specific case is not extremely unjust or immoral (sittenwidrig). In a 2017 decision 3  the Austrian Supreme Court held that in a business-to-business transaction the following exclusion of liability clause in the general terms and conditions: “claims for damages in any case only cover the pure repair of damage, but not consequential damage and loss of profit” is legally permissible, because there was no complete exclusion of liability, but only a limitation of liability to the direct loss (Positiver Schaden). In this specific case, the court held that such clause was not immoral against the backdrop of a mutual business transaction. In practice, however, it is advisable to check liability exclusions (of any kind) for their legal admissibility in the specific case. In business-to-consumer transactions the transparency requirement of Section 6 para 3 of the Austrian Consumer Protection Law (Konsumentenschutzgesetz), which stipulates that unclear or incomprehensible clauses in general terms and conditions are invalid, must additionally be considered.

As the term “consequential loss” itself is not explicitly defined under Austrian law, the meaning attributed to the words “consequential loss” depends on the interpretation of the specific contractual clause(s). Furthermore, there are currently no decisions by the Austrian Supreme Court on the meaning of “consequential damages” in contracts which are subject to Austrian law but written in English. Hence, a case-by-case determination of the exact meaning of such a limitation clause in the context of the specific contract is required. 

Contractual interpretation rules are laid out in Sections 914 et. seq. of the ABGB. The primary focus of contractual interpretation is to determine what the true intent (Absicht der Parteien) of the contractual parties at the time of the signing of the contract was. In order to find out the parties’ intentions any evidence may be used. In practice, evidence produced by witnesses who participated in negotiating the contract, email correspondence, memos or draft versions of the contract are often used for this purpose. If the true intention of the parties cannot be determined, the ambiguity rules of Section 915 of the ABGB will apply. According to these rules, ambiguous clauses in any legal transactions carried out for consideration (of any sort) are interpreted to the disadvantage of the party who introduced such clauses. In the case of gratuitous legal transactions, any ambiguous clauses are to be interpreted in the way that results in a lesser burden to the obligor pursuant to Section 915 of the ABGB. 

As mentioned above, Austrian law uses the concept of Folgeschäden (literal translation “consequential damage”) to define damages which do not result directly from the damaging act, but only arise indirectly from the infringement of legal rights. As the concepts of Folgeschäden and “consequential losses” appear to overlap, courts in Austria might refer to the meaning of Folgeschäden when deciding on the exact meaning of “consequential losses”. 

Due to a lack of a statutory definition for the English term “consequential damages” or any relevant case law on that issue, it is therefore not possible to pinpoint the exact meaning of the term in a uniform definition. For this reason, parties should – and in high value contracts drafted in English language this is market standard already – define “consequential loss” (i.e. concisely list the losses and/or damages which fall under the exclusion of liability).

In high value contracts it has become standard to specifically describe the types of losses that shall be excluded (i.e. by adding a list of all such losses) and/or to add Austrian legal terms in brackets to the English wording. 

In order to determine the exact meaning of these other types of losses listed in a contract written in English governed by Austrian law, the contractual interpretation rules laid out in Sections 914 et seq of the ABGB are to be used. As outlined above, the primary focus lies in the determination of the true intent of the contractual parties at the time of the signing. If the meaning remains ambiguous, the ambiguity rules of Section 915 of the ABGB are applied.

If the list of excluded damages is exhaustive, courts would likely treat damages that are not expressly excluded as recoverable (even if other comparable damages are excluded). Therefore, careful drafting of contractual exclusion of liability clauses is essential.

A mere exclusion of liability for consequential losses does not have an impact on non-damages claims. However, in many cases contracts also stipulate other exclusions of liability.