Loyalty in commercial contracts

The general duty of loyalty in contractual relationships is an overarching principle which means that the parties – before, during and to a certain extent after the contractual relationship – are obliged to act reasonably loyally towards each other and not unreasonably undermine the interests of the other party. The roots of the principle can be traced far back in Norwegian legal tradition through the classic requirements of good faith.

Perhaps the earliest example of independent balancing of loyalty interests in contracts can be found in Rt. 1936 page 909, the so-called Dictionary judgment. 

The decision concerned a dispute between a proposal and the author over a publishing contract from 1902, in which the author transferred the publishing rights to his English-Norwegian dictionary for a fee and with a non-competing clause. The first edition was sold out 20 years after the agreement was signed, and the parties did not reach agreement on a new, revised edition. The publisher decided instead to print the old edition unchanged, and at the same time promised to give the author notice "well in advance" before the new edition ended. The author interpreted this promise to mean that he would be given notice about three years before the estimated end of circulation, and continued to work on a revised edition in confidence in this. In the autumn of 1929, the publisher bought the publishing rights to a series of Danish dictionaries and entered into a contract for the preparation of an English-Norwegian dictionary that would compete directly with the author's work. However, the publisher did not inform the author of these plans, and he was not notified until he himself took the initiative, about 4 years later. The new dictionary was published the same year and was well received, while sales of the author's dictionary fell dramatically. When the author tried to find a new publisher, this was rejected on the grounds that it was now too late as the market already had competing dictionaries. The Supreme Court found that the publisher, through its secrecy, had deprived the author of the opportunity to find a new publisher, and ordered the publisher to pay damages. Although this was not directly stated in the decision, it is generally assumed that the decision was based on fundamental considerations of loyalty between the parties to the contractual relationship.

Perhaps the first decision from the Norwegian Supreme Court expressly using the term "duty of loyalty" as an independent legal norm in a contract was Rt. 1988 page 1078. The case concerned the question of whether a bank had acted with sufficient loyalty and care towards a guarantor under a loan arrangement. 

The Supreme Court held that, in guarantee relationships as in contractual relationships generally, the creditor must act with due care and loyalty towards the guarantor, and that this requirement applies not only at the time the guarantee obligation is entered into, but for as long as the obligation remains in force. However, the Supreme Court also emphasized that in guarantee relationships, requirements must also be imposed on the guarantor – he must exercise due care and, depending on the circumstances, may be required to act proactively to safeguard his interests, and the requirements regarding the creditor's conduct must be viewed in light of what can reasonably be expected of the guarantor.

The Supreme Court found that some criticism could be levelled at the creditor for failing to keep the guarantor regularly informed as the situation became more precarious. Nevertheless, the decisive factor was that the creditor was a professional credit insurance company, and the engagement must, from the outset, have appeared uncertain, which called for particular attention. The Supreme Court therefore could not see that there were grounds for any liability on the part of the creditor.

The principle of loyalty in contractual relationships has subsequently been developed and clarified by the Supreme Court in a number of key decisions, both as an element in the interpretation of contracts (e.g. Rt. 2004 page 1256 and Rt. 2005 page 268) and as an independent basis for rights and obligations (Rt. 1995 page 1460 and Rt. 2005 page 1487).

In summary, the trend has been towards recognizing the principle as an interpretive factor for determining the parties' agreement and as an independent legal norm with more or less far-reaching consequences: The principle applies in all phases of a contractual relationship – from the pre-contractual stage, through the contract period and onwards as a liability after the services have been delivered. All rules on the duty to provide information, the duty to investigate and the duty to notify are based on the principle.

With this development in mind, it is therefore interesting when the Supreme Court in 2026 chooses to hand down a new precedent concerning the application of the principle of loyalty in professional contractual relationships.

The case concerned a compensation claim following the termination of a supply agreement between Norwegian decoupling mat manufacturer Isola and German company Dural and centered on whether Dural had breached its duty of loyalty.

Under the 2015 supply agreement, only Isola was bound by exclusivity, while Dural was subject to a minimum volume commitment. In early 2019, Dural secretly approached Italian manufacturer TeMa, sending Isola's decoupling mat for copying. Dural subsequently ordered mats from TeMa and resold them under the same brand as Isola's mats, without informing customers of the change. When Isola learned of this over a year and a half later, it terminated the agreement on the grounds that Dural had breached both the agreement and its duty of loyalty.

The Supreme Court found that Dural had not breached the agreement, as no exclusivity clause prevented Dural from purchasing mats from other suppliers.

In its decision, the Supreme Court confirms that the duty of loyalty in contractual relationships is well-established in Norwegian law and applies as long as the obligation remains; the requirement for loyal and diligent conduct is considered implicit in any contractual relationship.

At the same time, the Supreme Court clarifies an important delimitation that is particularly relevant in commercial relationships: In commercial and more professional contractual relationships, it must be expected that the parties themselves identify and establish the key rights and obligations. If they have agreed on a certain distribution of burden and risk, it is not possible to change it with reference to the duty of loyalty. The function of the duty of loyalty is first and foremost to supplement the agreement where it is tacit.

The District Court found that Dural was bound by an exclusivity obligation under both the agreement and the duty of loyalty, and that Isola's termination was therefore justified.

The Supreme Court rejected both conclusions. The duty of loyalty in long-term contracts did not extend to imposing exclusivity on Dural or altering the parties' agreed allocation of risk. Nor did sending Isola's mat to TeMa for copying breach the duty of loyalty, as the mat was publicly available and the IP was not protected. Given the agreement's clear provisions on trademark use, the duty of loyalty could not restrict Dural's use of its own trademark.

The Supreme Court acknowledges that Dural was obliged to inform Isola that the company had acquired an alternative supplier, as the information was important for the volumes Isola could expect to deliver in the future. The notification was given in the autumn of 2020, but the question was whether Dural was obliged to notify as early as the spring of 2019, when TeMa was first contacted.

The Supreme Court found that it had not yet been clarified whether Dural would buy mats from another supplier in the spring of 2019. Such information would therefore not have been particularly significant for Isola at the time – it did not in itself create any risk of default as the volume commitment was fixed. It was also crucial that in a business relationship such as the present one, the parties had to have leeway to make their own strategic assessments and measures without the obligation to immediately inform the other party. Dural had acted within this leeway when the disadvantage for Isola was no greater than it was.

HR-2026-280-A primarily contributes with two important clarifications of the loyalty principle in commercial agreements:

First, the judgment clearly delimits the scope of the duty of loyalty in relation to explicitly agreed risk allocation. The function of the duty of loyalty is first and foremost to supplement the agreement where it is tacit – it cannot be used to review or reverse terms that the parties have deliberately negotiated. This is a clear delimitation that applies in particular to professional, commercial relationships between equal parties.

Second, the judgment elaborates on the content of the duty of disclosure that follows from the principle of loyalty in ongoing contractual relationships. In many contractual relationships, loyal conduct may imply that the parties continuously inform each other of significant events, changes and other developments of importance for the implementation of the agreement. However, this obligation does not arise in every internal strategic assessment, but only when the change is sufficiently specific and significant to the interests of the other party. Even secrecy for about a year and a half was not, in the Supreme Court's opinion, a breach of loyalty, because the disadvantage for Isola was not sufficiently qualified.

Overall, the judgment deepens the boundary between what is disloyal and what is legitimate commercial conduct in supplier relationships – and confirms that the threshold for establishing a breach of loyalty in commercial relationships between professional, equal parties is significantly higher than in contractual relationships characterised by a skewed balance of power or particular dependency on trust, such as surety relationships and long-term cooperation agreements with strong dependency relationships.

In fact, there are certain similarities between the author in the Dictionary judgment, who experienced that the publisher secretly acquired publishing rights to books in competition with its own, and the decoupling mat manufacturer, who experienced that its partner secretly established a competing collaboration with a new supplier on the same mat. Is it possible to deduce a development from the first example of the duty of loyalty used in Norwegian Supreme Court case law and the latest?

One might argue that the duty of loyalty started as a requirement rooted in particular, trust-based types of contract, but has gradually developed into a general principle of Norwegian contract law. Rt. 1988 page 1078 lifted the duty from applying to specific contract types to applying in "contractual relationships generally" – and not only at the time the obligation is entered into, but for as long as it subsists. In HR-2026-280-A, this is confirmed and systematized further: The requirement of loyal and careful conduct is regarded as implicit in any contractual relationship. In parallel, the substantive content of the duty has become clearer – at its core, it obliges the parties to safeguard each other's interests to a certain extent, and its scope is heightened depending on the circumstances, particularly in long-term collaborative relationships with shared objectives.

Equally important is the clearer delimitation that has emerged over time. In Rt. 1988 page 1078, it was established that the duty is reciprocal and relative – the requirements imposed on one party's conduct must be viewed in light of what can reasonably be expected of the other. In HR-2026-280-A, the boundary is drawn explicitly and as a matter of principle: The duty of loyalty cannot be used to alter the allocation of burden and risk that the parties have themselves agreed upon, and its function is primarily to supplement the contract where it is silent. 

The threshold for the duty to provide information has also become more nuanced. In the Dictionary judgment, the obligation arose already upon the acquisition of the publishing rights to the competing dictionaries – i.e. through an intention that had not yet been realized. In HR-2026-280-A, on the other hand, the Supreme Court accepted that professional parties have a legitimate "leeway to make their own strategic assessments and measures without the obligation to immediately inform the other party", and that the duty to inform the other party only arises when the change is sufficiently specific and significant to the interests of the other party. This difference can partly be explained by the differences in the nature of contractual relationships but also reflects a broader legal development in which the consideration of predictability and freedom of contract in commercial relationships is given greater weight.

The core of the principle of loyalty – that contractual parties have a duty to safeguard each other's interests to a certain extent – remains unchanged, but the boundaries of what can be deduced from this duty are now more clearly drawn in commercial relationships between equal, professional parties.