July 03 2001
The usual limitation of liability clauses included in international contracts have been interpreted and given effect under Colombian law by courts and arbitration tribunals, even when it is decided that the relevant contract is subject to Colombian law. Such clauses usually limit the amount of damages and exclude liability for loss of profits and for indirect, consequential, incidental or punitive damages.
Under the Colombian Civil Code the indemnification for damages includes actual damages and loss of profits. 'Actual damages' are defined as the damages caused by the party not having complied with its obligations, or from imperfect or late performance. 'Loss of profits' is defined as the profits that the non-breaching party fails to obtain as a result of the breach(1).
In case of breach of contract, if the breaching party is not liable for wilful misconduct it will only be liable for the damages that were foreseen or could have been foreseen when the contract was entered into. If the given party is liable for wilful misconduct then it will be liable for all damages that are an immediate and direct consequence of the breach. The parties may agree to modify these rules. However, forgiveness of wilful misconduct is expressly prohibited(2).
The courts and arbitral tribunals have accepted that it is possible for the parties to a contract to limit either the extent of the liability or the amount for which a party could be liable in case of breach of contract.
As to the limitation of the extent of the liability, the Civil Code provides for certain rules regarding the liability of the parties to a contract(3), but indicates that the parties may modify these rules by mutual agreement. Since Article 1522 of the Civil Code expressly prohibits forgiveness of wilful misconduct the parties to a contract may agree on the extent of its liability, but they will always be liable for wilful misconduct.
In accordance with these rules, one may conclude the following under Colombian civil and commercial law:
With respect to the limitation of the amount of the liability, Article 16 of Law 446 of 1998 provides that in any judicial or arbitral proceeding the valuation of damages must result in an equitable and integral repair thereof. This provision has been interpreted by some commentators to mean that one of the parties cannot validly limit the amount of damages to which the other party may be entitled. However, following these rules, if the parties have limited the amount of the liability a judge would have to follow the agreement of the parties unless:
Penalty clauses are also permitted. One of the categories of clause is deemed an advanced liquidation of damages (not exactly a limitation on the amount of the damages). Pursuant to Article 1592 and following of the Civil Code, as interpreted by Colombian jurisprudence and doctrine, there are three different types of penalty clauses:
For further information on this topic please contact Eduardo Zuleta at Zuleta, Garrido, Araque & Jaramillo Abogados by telephone (+571 310 6614) or by fax (+571 310 6286) or by e-mail (email@example.com).
(3) Article 1604 of the Civil Code provides that the debtor shall be only liable for wilful misconduct in contracts that only benefit the creditor, for ordinary negligence in contracts that benefit both parties and for slight negligence in contracts that only benefit the debtor.
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