Consequential loss in the energy sector in Norway

Consequential loss (Norwegian “konsekvenstap/følgeskade”) is often used in a similar context as indirect loss (Norwegian “indirekte tap”). When used in contracts with English language governed by Norwegian law, the two terms are often used as either/or, in combination.

The concept of “indirect losses” under Norwegian law are generally described as losses which are of a too remote character and that are difficult to calculate in advance. 1  The extent of losses considered as indirect under Norwegian law is not clearly defined. Which losses are considered as indirect must be determined on a case-by-case assessment. An important starting point is Section 67 (2) of the Norwegian Sale of Goods Act, 2  which specifically defines indirect loss in sales relationships.

Yes, and this is very much considered to be an industry standard in the energy sector, as well as other industries. In Norway, the term “consequential loss” is used alongside the term “indirect losses”.

The oil and gas industry has established a set of standard contracts for the supply of major components for the production of petroleum deposits. Its regulation on exclusion of liability is included as an example below:

Example 1: Norwegian Total Contract 2015 3

“LIMITATION AND EXCLUSION OF LIABILITY
Company shall indemnify Contractor Group from Company Group's own indirect losses, and Contractor shall indemnify Company Group from Contractor Group's own indirect losses. This applies regardless of any liability, whether strict or by negligence, in whatever form, on the part of either group and - except as stated in Art. 17.3 and 24.2 - regardless of any other provisions of the Contract.

Indirect losses according to this provision include but are not limited to loss of earnings, loss of profit, loss due to pollution and loss of production.”

This is typically referred to an industry standard practice in Norwegian energy law. Hence similar regulations are widely used and incorporated in energy/commercial contracts, where the parties incorporating reciprocal contractual exclusion of liability for consequential loss/indirect loss. In example 1 above, the reference to the exceptions in the first para (Art. 17.3 and 24.2) concerns a fixed cancellation fee in case of termination by convenience and liquidated damages. This exception is generally incorporated to clarify priority.

E&P companies and various service companies would generally include an exclusion of indirect and consequential loss on a reciprocal basis in their own standards. They would typically either use the wording indirect loss or consequential loss, or the two combined.

See for instance the example from Equinor’s general sales terms below.

Example 2: equinor-general-terms-conditions-sales-2022-edition 4

“Consequential losses
Except as specifically provided for elsewhere in the Agreement, in no event, including a negligent act or omission on its part, shall either Party be liable to the other, whether under the Agreement or otherwise in connection with it, in contract, tort, breach of statutory duty or otherwise, in respect of any indirect or consequential losses or expenses including (without limitation) if and to the extent they might not
otherwise constitute indirect or consequential losses or expenses, loss of anticipated profits, plant shutdown or reduced production, loss of power generation, blackouts or electrical shut-down or reduction, hedging or other derivative losses, punitive damages, goodwill, use, market reputation, business receipts or contracts or commercial opportunities, whether or not foreseeable.”

The term “consequential loss” itself is not defined under Norwegian law, hence the meaning attributed to the words “consequential loss” depends on the interpretation of the specific contractual clause(s) and the agreement text and content.

As noted above, the term “consequential loss” is often used in contractual exclusion clauses in conjunction with the term “indirect loss”. The determination of what constitutes indirect loss must be made on the basis of general rules of compensation within and outside contracts 5 .

Generally, energy contracts normally do not contain a definition of the term consequential loss/indirect loss. Rather it is quite common to list certain losses which shall be considered as a consequential loss/indirect loss under the specific contract. This list tends not to be exclusive. It would typically include wording or similar stating that consequential loss/indirect loss under this contract/provision “shall include, but not be limited to, the following…”, and thereafter listing the specific losses that in any event shall be considered as a consequential loss and/or an indirect loss.

What shall be considered as consequential loss/indirect loss under a specific contract, will need to be determined on a case-by-case assessment based on a contractual interpretation of the agreement text and Norwegian background law.

As mentioned, an important starting point here will be Section 67 (2) of the Norwegian Sale of Goods Act, which specifically defines indirect loss in sales relationships. However, any direct use of the Norwegian Sale of Goods Act's provisions on indirect loss can hardly be considered, since the Sale of Goods Act makes the scope of liability dependent on the basis of liability. 6  In our context, exclusion of contractual exclusion clauses is normally incorporated regardless of any liability.

Please further note that the list included in the Sale of Goods Act is exclusive, different than the general adaptation of regulations in typical energy contracts. As per Section 67 (2) of the Norwegian Sale of Goods Act the following losses shall be considered as indirect:

1. losses resulting from reduced or lost production or turnover (business interruption)
2. losses resulting from the item not being usable as intended (loss of use)
3. lost profits resulting from a contract with a third party being cancelled or not being properly fulfilled, but only to the extent that the buyer, without reasonable cause, fails to make replacement purchases or take other measures to avoid or mitigate the loss
4. loss resulting from damage to items other than the item sold and items used for its manufacture or which are closely and directly related to its intended use

The preparatory works to the Norwegian Sale of Goods Act comments in its explanatory memorandum that a distinction between direct and indirect loss is common in contractual practice, and that the definition of indirect loss in Section 67 of the Sale of Goods Act may help in interpreting the contract. 7  It states specifically that “the provision may serve as a guideline for the interpretation of exemption clauses with regard to indirect loss, consequential loss and similar losses”. 8

To determine the content and exact meaning one will need to interpret the contract and apply the principles of contract interpretation under Norwegian law.

As per our comments above, energy law contracts in Norway typically do not include an exhaustive list of losses of what shall be considered as consequential loss. The clauses may instead typically include a non-exhaustive list of categories which shall be considered as consequential/indirect loss, and in addition lean on the Norwegian background law.

Section 67 (2) item c) of the Norwegian Sale of Goods Act defines a specific loss of profit element to be direct indirect loss, ref. the quote above. Loss of profit, as a general element, is also listed as an example of loss to be covered as direct loss, under Section 67 (1) of the Norwegian Sale of Goods Act. Hence loss of profit caused to the other contracting party under the respective contract is generally considered as direct loss under Norwegian law. Following this, “loss of profit” is often included as an element that shall be considered as indirect loss under a contract, to avoid this being considered as a direct loss element.

Other losses under a contract with a third party other than loss of profit, may also be considered as direct losses under Norwegian law. A contracting party’s liability for loss in the event of delay (for example liquidated damages incurred) and defects under a contract with a third party may therefore be considered as direct losses. To avoid the risk of such losses not being regarded as indirect losses under a contract, these categories of losses are often thus included in the definition of indirect losses in a contract, typically in the non-exclusive list.

In general, no. Exclusion clauses for consequential loss typically pertain to liability for damages and thus should not directly affect non-damages claims such as claims for specific performance or injunctions.