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

1. Do the words “consequential loss” have a given meaning in law?

No. The words ‘consequential loss’ have no given or recognised meaning in Dutch law.

The Dutch Civil Code (DCC) stipulates that damages that are payable pursuant to the law, such as damages in connection with a breach of contract, may consist of financial damages and so called ‘other damages’. Dutch law does not recognise punitive damages.

Financial damages (vermogensschade) are suffered losses as well as lost profits. Other damages that can also qualify for compensation as financial damages are:

  • reasonable costs to prevent or limit the damage which could be expected as a result of the breach;
  • reasonable costs for the determination of the nature and scope of the damage; and
  • reasonable costs incurred in obtaining extra-judicial payment.

Other damages (ander nadeel) consist of immaterial or emotional damages. A legal basis for this form of compensation is given in the DCC. Such damage may qualify for compensation when:

  • the damage is intentional;
  • a person suffered physical injury (or reputational damage); and/or
  • the memory of a deceased is harmed.

There is no difference between direct and indirect damages under Dutch law. In principle, damage that is connected in such a way to the breach that it can be allocated and is seen as a consequence of the breach will be compensated (causaal verband). Parties are – to a large extent – free to deviate from this main rule.

2. Are the words “consequential loss” used in contractual exclusion of liability clauses?

Yes. In contracts used in the industry, ‘consequential loss’ is often explicitly excluded.

Please see the examples below:

Example 1

"The Unit Operator shall not, except in its capacity as an owner of a Percentage Interest, be liable for, and each Party shall to the extent of its Percentage Interest indemnify the Unit Operator against, all loss and damage arising, whether directly or indirectly, out of the performance, non- or mis-performance by the Unit Operator of its obligations hereunder, and against any and all actions, costs, claims, damages or demands arising in connection therewith, except in the case of any actions, costs, claims, damages or demands aforesaid arising out of the Wilful Misconduct of the Unit Operator PROVIDED THAT such exception shall not extend to any consequential loss and damage which, for the purpose of this Agreement, shall include but not be limited to, loss or damage arising out of postponement or interruption of production, inability to produce Unit Substances, loss of profit, loss of revenue or loss of use thereof or any loss in the nature of the foregoing."

Example 2

"Neither Group shall be liable to the other for consequential losses including, without limitation, damages through loss of production, loss of profits or income, loss of business or business expectations or loss of contract irrespective of Gross Negligence and or Wilful Misconduct."

Example 3

"Gross Negligence and or Wilful Misconduct means, in relation to a person, an intentional and conscious, or reckless, disregard by the person’s directors, supervisors or management employees or by any agent or contractor of the person acting in a supervisory or management capacity for that person, of any of the provisions of this Agreement or of good oil and gas field practice, but shall not include any error of judgment or mistake made by any such director, supervisor or such employee, agent or contractor, in the exercise, in good faith, of any function, authority or discretion conferred upon that person under this Agreement; and for the purpose of this definition “person” means any company, firm, partnership, association or body corporate."

Example 4

"The Operator shall not be liable to any Party hereto for any damage or loss resulting from Joint Operations conducted hereunder, unless such damage or loss results from its gross negligence (“grove schuld”) or wilful misconduct (“opzet”) and provided that in no case shall the Operator be liable to any Party for any consequential loss or damage such as any loss of oil or gas or loss of profit or any loss under any contract. The expression "gross negligence or wilful misconduct" shall be deemed not to include any omissions, errors or mistakes made by any such officer, director or employee in the exercise in good faith of any authority or discretion conferred upon the Operator under this Agreement."

3. If so, what meaning is attributed to the words “consequential loss” in contractual exclusion clauses?

Dutch law does not define consequential loss. The Court will have to interpret the meaning of an exclusion of consequential loss provision. See below under 4.

Dutch law adheres to the doctrine of freedom of contract (although not included in the DCC), meaning parties may freely enter into contracts and are free to agree on whatever terms or wording desirable, albeit within the bounds of the law and subject to the principle of reasonableness and fairness. It is recommended that the term 'consequential loss' is clearly defined in the contract, so that no discussion can arise about the intentions of the parties and to leave little room for interpretation for a Court. See examples under 2.

Note that an exclusion of liability clause invoked in the event of wilful misconduct (opzet) or gross negligence (grove schuld) may be voided by the Court as violating the Dutch legal principle of reasonableness and fairness. The same applies to an agreed cap on liability in the case of wilful misconduct or gross negligence.

The principles of reasonableness and fairness (redelijkheid en billijkheid), must be taken into account when interpreting and executing agreements under Dutch law (Section 6:2 DCC). This principle may influence the interpretation of a contract:

  1. either by supplementing the contract in case of a contractual gap (the so-called supplemental function of the reasonableness and fairness principles); or
  2. by correcting the effects of the contract (the so-called corrective function of the reasonableness and fairness principles). Wilful misconduct and gross negligence are generally excluded from clauses on exclusion or limitation of liability as invoking such a clause in the event of wilful misconduct or gross negligence may violate the principles of reasonableness and fairness.

4. Where a clause includes other heads of loss alongside consequential loss, how will the law approach such clauses?

Generally, the different types of losses are set out as examples of consequential losses and are construed as such.

With regard to the interpretation of such clauses, under Dutch law not only is the wording of a contract decisive in determining the rights and obligations of parties, but so too is the context and meaning that parties could reasonably give to a certain contractual provision when entering into the contract. Subject to extensive case law, the mere wording of a contract may not have to be decisive to determine the legal effect of the contract. Even if the wording of a contractual clause may seem grammatically clear, the key question is what meaning the parties could have reasonably given to the clause in the specific circumstances at the time of entering into the contract and what they could reasonably expect of each other in this respect. In answering these questions, all relevant factors should be taken into account, including, amongst others, the knowledge of the parties, the reasonable expectations of the parties and their social position. However, in cases of commercial contracts (and especially if these have been drafted with the assistance of legal advisors) the Court tends to place great emphasis on the linguistic meaning of a clause.

The Court will also check whether invoking the clause violates the principle of reasonableness and fairness (if the clause is invoked in the event of gross negligence or wilful misconduct). Please note that because of the freedom of contract that is granted to parties, the Court will generally be reluctant to apply the corrective function of the reasonableness and fairness principle (see above under 2), especially in cases of business-to-business contracts.

5. Do consequential loss exclusion clauses have an impact on non-damages claims?

No. The existence of a consequential loss clause or a limitation of liability clause will not necessarily mean that an application for a non-damages claim is more likely to succeed. Dutch law generally allows an action for specific performance of an obligation (contractual or non-contractual) against another party, irrespective of whether there are other remedies available, as long as performance is possible.

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Martika Jonk
Senior Counsel | Advocaat
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Marcellina Rietvelt