OGH: Only variable personnel costs are “frustrated” costs and eligible for compensation

Oct 20, 2020 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, OGH) dealt with the question whether frustrated personnel costs are eligible for compensation in addition to loss of earnings.

In the present case, an “architecture and engineering contract” exists between the plaintiff and a third-party in connection with the renovation of a luxury hotel in Croatia. A claim was made against the defendant under a letter of comfort. As the completion of the project was delayed and the hotel was forced to reopen 146 days later than scheduled, the plaintiff sought compensation for loss of earnings from hotel operations and, in addition, the frustrated salary costs for employees whom he had hired in legitimate faith in the defendant’s promises.

Based on a trade union agreement, the plaintiff was required to pay wages to the workers during the period until the delayed opening. In principle, such a continued payment of wages can represent a frustrated expense eligible for compensation. This only applies, however, if these costs are not anyway compensated by the granting of loss of earnings. According to the OGH, the calculation of the loss of earnings must also take into account lost income that could have been used to cover fixed costs.

However, the combination of compensation for frustrated expenses and loss of earnings may not result in an enrichment of the injured party beyond the damage caused. In addition, the personnel costs, inasmuch as they are fixed costs, would have been incurred even if the hotel had been fully operational and are therefore not frustrated costs, but correspond to the expenses that the plaintiff would have had to bear even if the hotel had been completed on time.

The situation is different if personnel costs are variable costs. In this case, there is indeed a claim for reimbursement of those (notional) revenues that would have had to be used to cover variable personnel costs if the project had been completed on time.

OGH 6 Ob 47/20k (25 June 2020)