High chairs and high stakes: Limitation of liability clauses in Norwegian law offshore contracts
Disputes are expensive, particularly those involving large construction projects where there may have been changes to the scope of work and cost overruns. Contractors therefore face a difficult choice when trying to close the final account, either negotiating a resolution on any terms available or funding litigation which they may not be able to afford.
Delays, non-conformities and accidents during the performance of offshore contracts can cause large losses. Limitation of liability clauses therefore play a crucial role.
Under Norwegian law contracts, limitation of liability clauses are not necessarily enforceable if the courts find that a delay, non-conformity or accident was due to grossly negligent or wilful acts or omissions by management employees or directors of the party in breach. A key question for offshore suppliers is what categories of employees this carve-out from the limitation of liability clauses applies to. Some guidance can be found in Supreme Court decisions and legal theory.
The starting point under Norwegian law is freedom of contract. Whilst this principle extends to limitation of liability clauses, there are certain limits to the extent to which parties to a contract may validly exclude liability for performing their fundamental obligations under a contract. In general, a contracting party may rely on limitation of liability clauses with respect to the acts or omissions of its employees or subcontractors, but not with respect to the party’s “own” wilful acts or gross negligence.
In offshore contracts the contracting parties are legal persons, and allegations of wilful acts or gross negligence will necessarily concern the acts or omissions by someone on behalf of the company, such as employees or directors. This raises the question of what level of seniority that the employee or director must have before their acts or omissions are attributable to the company as such. The board of directors and managing director are clearly sufficiently senior, but beyond these examples the situation is uncertain – particularly when it comes to complex corporate structures with separate operating and asset-owning entities.
The Stokke judgment
In a Supreme Court decision from a few years ago, the Stokke judgment, this question was addressed in another context. The Stokke judgment concerned a claim from the copyright holder to the Tripp Trapp children’s chair for damages against a retailer that had marketed the similar Oliver high chair. The Supreme Court was asked to rule on a claim from the Tripp Trapp’s designer for a form of statutory punitive damages that required gross negligence not just by an employee, but by the retailer as such.
The decision to market the Oliver high chair had been made by the retailer’s head of procurement, who had overall authority over the products that the retailer carried. As this was an area of “central importance” to the retailer’s business, the head of procurement’s gross negligence was held to be attributable to the retailer as such.
The prominent legal scholar and professor, Viggo Hagstrøm, has previously argued that the carve-out from agreed limitations could be applied to “senior subordinates,” inspiring concerns that Norwegian courts might extend it as far down the chain as project manager level. In the “Stokke” judgment however, the Supreme Court makes a point of moderating this position. Nonetheless, the judgment reinforces the consensus view that wilful or grossly negligent acts or omissions of persons whose role is of “central importance” to a company’s business – even those persons whose position is below that of board of directors or managing director level – may restrict a company’s ability to rely on a limitation of liability clause. When negotiating offshore contracts or handling disputes, these aspects must therefore be taken into account.