Purpose:

1. ComparativeContractLaw: UK – USA – Norwayby Uisdean Vass (Maclay Murray & Spens LLP), Bill Riviere (PhelpsDunbar LLP) and Pål Lieungh (Thommessen)

2. Purpose: • Basedonour joint practicalexperience, we have identifiedcertain material differencesbetweenNorwegian, English and US lawaffectingtheinterpretationofContracts. • Wewillfocuson • Construction/Supply/Engineering/OffshoreContracts • Draftingissues

3. Structure for thepresentation • Wewill present separate slides for eachjurisdiction: Norwegian - English - US • The purpose is to providepracticalguidance – thispresentationwill not be exhaustivewithrepect to issuesdiscussed • Overall, mainadviceremains: Takeadvice from localcounsel !

4. The real purpose from a Norwegianlawyer’sperspective (butreplace ”sex” with ”Anglo-Amercian law”):

5. First: What is ”US law” • US = 50 states and US Federallaw. • Thereareverysignificant material differenceswhichexist. • Whichstates to prefer? Whichstates to avoid? It dependsonyourperspective (which side ofthecontractareyouon?); thesubject matter and localeofthecontract/parties; and yourgoals/intentions. Also, it dependsonyourbargainingpower. Elected vs. appointedjudiciary. • State law vs. Federallaw / Substantivelaw versus Procedurallaw: • Example from contractwithoilcompany in Houston: • “THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE GENERAL MARITIME LAWS OF THE UNITED STATES, WHERE APPLICABLE, AND WHERE NOT APPLICABLE, THE LAWS OF THE STATE OF TEXAS SHALL APPLY, EXCLUDING IN BOTH SITUATIONS HOWEVER, ANY CHOICE-OF-LAW RULE WHICH WOULD REQUIRE APPLICATION OF THE LAW OF ANOTHER JURISDICTION.”

6. Then: What is ”UK law” • UK = 3 countries (England & Wales, Northern Ireland and Scotland) • Wales has recently received limited law-making powers • The Scottish enigma • UK law like Federal Law. NEVER have a UK choice-of-law clause. • English law the choice of the Oil Industry

7. 1. General Issueswithregard to theconstructionofcontracts

8. Rules on construction of contracts: Norwegian law • NorwegianLaw: • ”basedonobjectivecriteria, to establish a reasonable and sensible meaningoftheprovision” • Parties to a contractarebound by an overall duty to act in goodfaith • If a provision is unclear, thecourtwilllook to thepre-historyofthecontract, expressedintentions, how a provisionfitswiththe rest ofthecontract, its purpose and finally; reasonableness • In theeventofambiguity, contractualprovisionsareconstruedagainstthe drafter • Whereissuesare not explicitlyaddressed in thecontract, backgroundlawwill fill in the gaps • No ParolEvidenceRule; All preparatoryworkadmissable. Will be used in theconstructionof a contract, especiallywherethecontract is unclear • ”EntireAgreement” clause as suchwill not have an effect

9. Rules on construction of contracts: English law • “the meaning which the document would convey to a reasonable person having all the knowledge … reasonably available to the parties in the situation in which they were at the time of the contract.” • No extrinsic evidence – previous negotiations and declarations of subjective intent. • Primary source for understanding intent is language used in accordance with “conventional usage”. • Contra proferentum. • Reasonableness – Unfair Contract Terms Act.

10. Rules on construction of contracts: US law (Louisiana) • The Four Corners Rule. Determination of the common intent of the parties. Louisiana Civil Code (“La. C.C.”) Art. 2045. When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the intent of the parties. La. C.C. Art. 2046. • Ambiguity. Conversely, when (and theoretically only when) the terms of a contract are susceptible to more than one interpretation, it is ambiguous and parol evidence may be used to show the true intent of the parties, Thereupon, various rules of interpretation become applicable. Words susceptible of different meanings must be interpreted as having the meaning that best conforms to the object of the contract. La. C.C. Art. 2048. A provision susceptible of different meanings must be interpreted with a meaning that renders it effective, and not with one that renders it ineffective. La. C.C. Art. 2049. Each provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole. La. C.C. Art. 2050. • Ambiguity Clause: “Each party and its counsel have participated fully in the review and revision of this Agreement. Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement. The language in this Agreement shall be interpreted as to its fair meaning and not strictly for or against any party.”

11. Recitals: Norwegianlaw ”WHEREAS (A) ….. ”NOW THEREFORE IT IS AGREED as follows” • ”Recitals” as such have nospecificmeaning under Norwegianlaw • IftheRecitalcommitsoneoftheParties to an undertaking or provides a right for one Party, it will most likely be enforceablenotwithstandingthefactthat it is located under ”WHEREAS” and above ”NOW THEREFORE IT IS AGREED”

12. Recitals: English law • If not excluded by the operative part contract, the recitals can be considered as being contractual • If words in operative part of contract are ambiguous, recitals can be used to clarify meaning. • Clear words in operative part of contract govern over recitals • If operative part of contract silent, a contractual obligation can arise from recitals

13. Recitals: US law • Not required. Can be and often are incorporated into the body of the contract, so as to afford the recitals contractual effect. • Contractual undertakings, if any, expressed therein likely to be enforced in most U.S. jurisdictions, absent ambiguity. • Often includes definitions/defined terms that will be referenced elsewhere in the contract, and same will be deemed to have controlling effect. • The law of some states provide that recitals are not a part of the contract and are not legally binding. In instances where the recitals standing alone are not legally binding, they may be used to resolve ambiguity in the operative provisions of the contract because they indicate the parties’ intent. • Practice Guidance: All provisions of a contract should be carefully reviewed to ensure internal consistency. Such review is particularly important where several counterpart documents bear upon a particular transaction or series of transactions.

14. Requirement for Consideration: Norwegianlaw • No requirement for consideration • A gift is enforceable • Norwegianlawdoes not in general recognizetheconceptof ”Deed”

15. Requirement for Consideration: English law • A definite, but very technical requirement. Consideration need not be adequate. Peppercorns. • A gratuitous promise made by “deed” is enforceable. • Certain contracts must be made by deed (e.g. transferring interest in land) • Deeds must be formally executed – e.g. a deed executed by an individual must be witnessed. • Effect on limitations periods.

16. Requirement for Consideration: US law • Most U.S. jurisdictions require consideration. Louisiana does not. It requires “cause.” • Some U.S. jurisdictions will accept a "recital of consideration" in the contract, while others will make an underlying determination as to the validity of the recital of consideration, if challenged. • Some U.S. jurisdictions will consider the recital of consideration to be a rebuttable presumption, but one that can be overcome by countervailing evidence.

17. Consideration: Examples. Whichone to use… “WHEREAS” “In consideration of the payment by [  ] to [  ] of the sum of United States Dollars one (US$1), the receipt of which is hereby acknowledged, [  ] the Parties agree as follows:” “FOR GOOD AND VALUABLE CONSIDERATION (the receipt and sufficiency of which are hereby acknowledged by each of the Parties) the Parties agree as follows:” “NOW THEREFORE IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL COVENANTS SET OUT BELOW THE PARTIES AGREE AS FOLLOWS:” “NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:” ”NOW THEREFORE IT IS AGREED as follows:”

18. ”Terms and conditions” are synonymes No specificdistinctionbetweenthefollowing: ”A herebywarrantsthat” ”A herebyrepresents” ”A herebywarrants and represents” ”A herebyguaranteesthat” (CertainConsumerrelatedlegislationprohibitstheuseofthe term ”Guarantee” unlessthe ”guarantee” providestheconsumeradditional rights/remedies compared to mandatorylegislation) “Terms”/”Conditions”/“Warranties” / “Representations”/ “Guarantees” : Norwegian law

19. “Terms”/”Conditions”/”Warranties”/”Representations”/”Guarantees”: English Law • A “term” means any provision of a contract. Traditionally, in English law, terms are either classified as “conditions” or “warranties” but there is lack of consistency. • Typically breach of a “condition” allows the innocent party to terminate the contract and to claim for damages. “Conditions precedent” “Conditions subsequent”. • Breach of a “warranty” gives the other party only the right to sue for damages.

20. “Terms”/“Conditions” / “Warranties”/“Representations”/ “Guarantees” : US law • ”Terms” and ”Conditions” – No distinction. • Warranty – A statement of information within the contract, the truthfulness of which is typically deemed to be a condition precedent of, and an inducement for, entering into the contract. A warranty is often specified to be an ongoing obligation of one or more parties. • Particular significance of Warranties in contracts of insurance. • Covenant – Forward looking statement, preferred term. • Representation - A statement by one or more parties to the contract setting forth information, such as present condition, and which is often influential in inducing the parties to contract. • The failure to comply with a covenant likely will be deemed by a reviewing court or tribunal to trigger a finding of contractual breach, and the remedies which flow therefrom under the terms of the contract or the governing law. • Guarantees – Not a preferred term in this context.

21. Impliedterms/”Backgroundlaw” • How to construethefollowingcontract: • ”A shallmanufacture and deliver Ex Works (Incoterms 2000) a GA 550 Generator to B by May 5, 2011 in returnofpaymentondelivery by B of USD 5 000.” • Whatdelaywillentitle A or B to terminate? • Whatconstitues a defect? • Whatarethe remedies in theeventof a defect? • What is thewarrantyperiod? • Ifthe Generator doesn’twork, is B entitled to damages? • B entitled to consequential/indirectdamages?

22. Implied Terms: Norwegianlaw • The conceptof ”Backgroundlaw”; a setofrulesderived from statutes, case law and legal textbooks • Whatdelaywillentitle A or B to terminate? ”Substantial” delay • Whatconstitues a defect? Conformwithrequirements – othwerwisefit for purpose • Whatarethe remedies in theeventofdefects? Rectification, redelivery, reduction in price, termination , damages • What is thewarrantyperiod? 2 years • Ifthe Generator doesn’twork, is B entitled to damages? Yes • B entitled to consequential/indirectdamages? Yes – in theeventofnegligence

23. Implied Terms: English law • Implied warranties are provided by the Sale of Goods Act 1979. However, in most O&G contracts, statutory warranties are excluded. • What delay will entitle A or B to terminate? No right to terminate unless time is of the essence. (SOG, Sections 51 & 54). • What constitutes a defect? If contract is sale of goods by description, goods must correspond with description (SOG, Section 13). Goods must be fit-for-purpose (SOG, Section 14).

24. Implied Terms: English law contd. • What are the remedies in the event of defects? Rejection of goods. Damages. • What is the warranty period? None implied. • If the Generator doesn’t work, is B entitled to damages? Yes, for violation of SOG implied terms. • Is B entitled to consequential/indirect damages? Yes, if these losses were in contemplation of parties on contract execution.

25. Implied Terms: US law • Implied warranties, present in each jurisdiction, will vary by state. Applicable law will determine if can be expressly modified by the contract’s express terms. • UCC Art. 2 (Sales) - All states (in varying form) except Louisiana. • La. C.C. Art. 2054. No provision of the parties for a particular situation When the parties make no provision for a particular situation, it must be assumed that they intended to bind themselves not only to the express provisions of the contract, but also to whatever the law, equity, or usage regards as implied in a contract of that kind or necessary for the contract to achieve its purpose. (Equity - Based on the principles that no one is allowed to take unfair advantage of another and that no one is allowed to enrich himself unjustly at the expense of another. Usage - A practice regularly observed in affairs of a nature identical or similar to the object of a contract subject to interpretation.) • La. C.C. Art. 2057. Contract interpreted in favor of obligor In case of doubt that cannot be otherwise resolved, a contract must be interpreted against the obligee and in favor of the obligor of a particular obligation. Yet, if the doubt arises from lack of a necessary explanation that one party should have given, or from negligence or fault of one party, the contract must be interpreted in a manner favorable to the other party whether obligee or obligor. • Redhibition (Louisiana) and other Implied Warranties discussed later.

26. Unreasonable terms and conditions: Norwegianlaw • Norwegianlawcontains a general ”Safety valve” in theAgreementAct § 36 • An agreementmay be setaside or amended by thecourts ”if it will be unreasonable or contrary to good business conduct to applythecontract” • The treshhold for setting aside an agreementbetweenprofessionalparties is regarded as veryhigh • § 36 is construed as includingtheconceptthat a waiverof or caponliability or an indemnitywill not be upheld (regardlessofwording) to thebenefitof a party that has actedwith gross negligence or willfulmisconduct at mangeriallevel. • ”Gross negligence” and ”willfulmisconduct” arelegallyunderstood terms. Typically, these terms are not defined in contracts.

27. Unreasonable terms and conditions: English law • The general principleofEnglishLaw is pacta sunt servanda. Unfair Contract Terms Act. • With commercialcontractstheonlypractical ”safetyvalue” arewhereprovisionsareagainstpublic policy. • In civillaw, there is nothing to stop a contracting party A from agreeing to indemnifycontracting party B from B’s gross negligence or wilfulmisconduct. However, such an indemnity must be clear.

28. Unreasonable terms and conditions: US law • Deceptive Trade Practices Consumer Protection Acts. (Often a consumer vs. commercial distinction.) • Public Policy - Statutory (ex., Oilfield Anti-Indemnity Statutes) or Common Law (ex., Anti-Indemnity in Towage Context – The Bisso Rule). • Implied Warranty Against Redhibition (La.) - A [hidden] defect which renders the thing useless, or its use so inconvenient that it must be presumed that a buyer would not have bought the thing had he known of the defect. (Rescission.) A defect is redhibitory also when, without rendering the thing totally useless, it diminishes its usefulness or its value so that it must be presumed that a buyer would still have bought it but for a lesser price. (Reduction in Price.) • Implied Warranty May Be Expressly Waived - Waiver must be: i.) be contained in the contract of sale; ii.) be clear and unambiguous; and iii.) be brought to the buyer’s attention or explained to him. A manufacturer provided express warranty, without more, does not qualify as a waiver. • Must give seller/manufacturer reasonable opportunity to repair defective product. • Damages – Refund, Rescission, Expenses, Attorney’s Fees.

29. Definitionsof ”Gross Negligence” and ”WillfulMisconduct”: Norwegianlaw • NorwegianSupreme Court decisiondefining ”gross negligence” (Rt 1989 p 1318): ”In order for an act to be considered as grosslynegligent, it must in my opinion represent a pronouncedderogation from common proper behaviour. It must be a behaviourthat is stronglyblameable, wherethe person is substantially more to blamethanwhere an act is onlynegligent.” • A definitionof ”willfulmisconduct is ”an intentional/deliberatedisregardofthecontract”. The intentional/deliberatedisregard must cover thebreachitself, but most likelyalsotheconsequenceofthebreach (i.e. thatthebreachwillresult in damage to theother party).

30. Definition of ”gross negligence” and ”wilful misconduct” under UK law • ”Gross negligence” and ”wilful misconduct” are not legal terms and MUST be defined. • ”Gross Negligence” means any act or failure to act (whether sole, joint or concurrent) in reckless disregard of or with wanton indifference to harmful consequences such act or failure to act would have on the safety or property of another Person. • ”Wilful Misconduct” means a conscious wilful act or conscious wilful failure to act which is deliberately committed with the intent to cause harm or injury to Persons or property.

31. Definition of ”gross negligence” and ”willful misconduct” under US law • Gross Negligence - generallydeemed to includetwo elements: (1) viewedobjectively from theactor’sstandpoint, theact or omission must involve an extremedegreeof risk, consideringtheprobability and magnitude ofthepotential harm to other, and (2) theactor must have actual, subjectiveawarenessofthe risk involved, butneverthelessproceed in consciousindifference to the rights, safety, or welfareofothers. • WillfulMisconduct - generallydescribed as (1) intentionalperformanceof an actknowingthattheactlikelywouldresult in injury or damage; (2) an action takenwith “recklessdisregard” ofthe probable consequences; or (3) a deliberatefailure to discharge a dutynecessary to safety.

32. Useofcapital letters/bold types for certainprovisions in a contract • Oftenseen in US/Englishcontract. • What is thesignificance? • Norwegianlaw: None • Englishlaw: None

33. Use of capital letters/bold types for certain provisions in a contract • US law: • Generallynosignificance. Note, however, somejurisdictionsrequire ”CONSPICUOUS NOTICE” in one form or another for certaincontractualprovisions (ex., indemnityprovisions to be governed by Texas law, certainconsumerprotectionacts). • Requirementsmayincludeuseofcapital letters, type-pointsize, bold type, etc. • Fair NoticeRequirementsofConspicuousness - something must appearonthefaceofthecontract to attracttheattentionof a reasonable person when he looks at it. (Texas).

34. The right to terminate a contract: Norwegianlaw - The conceptof ”material” default • Terminology: • Rescission is a remedyavailable for misrepresentation or fraud (invalidation) • In Norwegianlaw, nodistinctionbetween ”termination” or ”cancellation” of a contract • Distinctionbetween ”ex nunc” termination (effect for unperformedobligations) and ”ex tunc” termination (reinstatement). Consequenceofterminationdependsonwhetherrestitution is feasible/reasonable • A Contractmay be terminated in theeventof ”material”/”fundamental”/ ”substantial” (in Norwegian ”vesentlig”) default • Terminology: ”material”/”fundamental”/ ”substantial” willtypically be translatedinto ”vesentlig” • ”vesentlig” a welldefined term through case law, legal textbooks, statutes and theirpreparatoryworks. The test; ”is thebreachofsuch a nature or duration/scopethat it givestheother party reasonablegrounds to deemhimselfrelieved from thecontract” (NorwegianSupreme Court Decision from 1998 (Rt 98/1510))

35. The right to terminate a contract: English law • Rescission is a remedyavailable for misrepresentation or fraud. The purpose is to restoreparties to pre-contractsituation. • Termination for breachonlyoperatesgoing forward. • The Contractwillusuallyprovide for terminationoncertainbreaches, usuallywith a right to remedy. Manyoil service contractsprovide for termination at will (oftenrequiringpaymentof a premium) • ”Material” and ”repudiatory” breachclose in meaning. • PracticeAdvice: • Dealwithtermination in contract.

36. The right to terminate a contract: US law • Material breach – Often used, generally undefined. • Anticipatory Breach of Contract – Notice or other positive indication that party cannot or will not perform its contractual duties. • Time for suit? After anticipatory breach vs. after time for performance? • Breach is generally litigated over conflicting claims of breach. • Practice Points: • Insert requirement of written notice of material breach clause, allowing a time period to effect a cure, so as to preclude termination. • Insert specific terms defining material breach, termination rights and/or termination period.

37. How to construe the terms “Consequential Damages/Indirect Loss” (if no definition provided): Norwegian law • Norwegianlaw: • No distinctionbetweenthe terms • Norwegian Sales ofGoodsAct, §67 defines ”Indirect loss” as: a) loss as a consequenceofreduced or discontinuedproduction or trade • a loss as a consequenceofthegoods not beingutilizable as contemplated • loss ofprofit as a consequenceof a contractwith a third party becominginoperative or not beingdulyperformed, butonly to theextentthatthebuyerfailswithoutgoodgrounds to purchasesubstitutegoods or takeothermeasures to avoid or mitigatethe loss, d) loss as a consequenceofdamage to otherpropertythanthe sold goodsthemselves and objects for whosemanufacturethegoodsare used or which have a close and directconnectionwiththeircontemplateduse”

38. How to construe the terms “Consequential Damages/Indirect Loss” (if no definition provided): English law • Hadley v. Baxendale – two types of losses. • Direct losses – naturally arising from breach. • Indirect losses – not naturally arising but in contemplation of parties. • “Consequential losses” equals “Indirect losses”

39. How to construe the terms “Consequential Damages/Indirect Loss” (if no definition provided): English law • Thus define “Consequential loss” to cover not only indirect losses but loss of profit, loss of production, downtime etc when these are DIRECT. THIS IS CRITICAL.

40. How to construe the terms “Consequential Damages/Indirect Loss” (if no definition provided): US law • Generally used interchangeably, but most often in conjunction with one another. • Direct Losses - naturally arising from breach. • Indirect Losses - not naturally arising, but in contemplation of the parties. Foreseeable. • Loss of profit could be considered by a court to be a direct or an indirect damage flowing from opposing party’s breach. • One party to contract may seek to exclude or insulate “time is of the essence” or “liquidated damages for delay” provisions from a consequential damages waiver clause, so that those other provisions are not rendered inoperative or ambiguous/conflicting by the consequential damages waiver clause.

41. When is a contractenteredinto? Norwegianlaw • No formal requirements (except for wills) • A contractmay be deemed to have beenenteredintobefore it has beensigned, ifthepartiesare in agreementon all material provisions

42. When is a contract entered into? English law • When the parties have reached real agreement. • Thus, if the parties have only entered into an agreement “subject to contract” there is no enforceable contract. • Common in the Oil Business to make agreements effective before the date of execution.

43. When is a contract entered into? US law • Agreement on price and thing (Louisiana) • Enforcement of an oral agreement varies by jurisdiction. • Oral agreement binding under U.S. general maritime law. • Transfer of certain immovable objects (ex., immovables, real estate) requires a writing in many jurisdictions. • Contracts exceeding a certain monetary value must be in writing in certain jurisdictions. • Issue of proof.

44. 2. Specific Terms used in a Contract

45. Waiverofconsequentialdamages: Norwegianlaw • Example: NF 07 Art 32.1 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.

46. Howshortmay a definitionofconsequentialdamages be (withoutlimitingitsrelevance)? • WouldtheNorwegianversionwork? • “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.”

47. Waiver of consequential damages: English law • Focus on an adequate definition of consequential damages. • The Norwegian version would be unsafe as it originally fails to cover ”consequential losses” which arise as direct damages.

48. An English (O&G) Definition of Consequential Losses • “Consequential Loss” means: the following loss or damage howsoever caused or arising whether under contract (including without limitation under indemnities), for breach of contract, by virtue of any fiduciary duty, in tort or delict (including negligence) as a consequence of breach of any duty (statutory or otherwise) or under any other legal doctrine or principle whatsoever and whether or not recoverable at common law or in equity and whether caused directly or indirectly: • (a) any loss or damage arising out of any delay in, postponement of, interruption to or loss of production; • (b) any loss or damage arising out of any inability to produce, deliver or process hydrocarbons; • (c) any loss of or anticipated loss of use, loss of profit, loss of savings or loss of revenue;

49. An English (O&G) Definition of Consequential Losses • (d) any loss or damage incurred or liquidated or pre-estimated damages of any kind whatsoever borne or payable, under or arising out of or in connection with any contract for the sale, exchange, transportation, processing, storage or other disposal of hydrocarbons; • (e) any losses associated with business interruption including without limitation the cost of overheads incurred during business interruption; • (f) any loss of bargain, loss of agreement, loss of contract, loss of expectation, loss of business, loss of business opportunity or loss of opportunity; • (g) any increased cost of working or any finance charges; • (h) any indirect or consequential loss of any nature whatsoever; and • (i) any other loss or anticipated loss or damage whatsoever in the nature of or consequential upon the foregoing.

50. Waiver of Consequential Damages: US law • Neither party heretoshall be responsible to theotherhereunder for, and bothpartieswaive and release all rights againsttheother party and its Group for, special, indirect, punitive or consequentialdamagesincluding, but not limited to loss ofuse, loss ofprofit, or business interruption, regardlessofwhethercaused in whole or part by thenegligence, strictliability or other legal faultofthereleased party or its Group, or theunseaworthiness or anyVessel, or any charter breach.