Excluding Consequential Loss in Petroleum Joint Operating Agreements with Emphasis on British Legal System

A well-known method for risk management in petroleum joint operating agreements (JOA) is the use of knock for knock liability clauses. In one type of such clauses, parties in the JOA exclude their liability to consequential loss. Despite the existing doubts with regard to recoverability of consequential loss (indirect damages) and loss of profit within the Iranian legal system and accordingly the usefulness of excluding such losses, the British courts trying to construe and interpret the exclusion of consequential loss and loss of profit narrowly and therefore, insisted on recoverability of such losses to the extent possible despite the parties’ agreement to exclude them. Furthermore, loss of profit may be considered as direct losses in the British and American legal systems.