Force majeure refers to exceptional events which prevent or hinder the performance of an obligation. Generally, these are events beyond the parties’ control, which could not have been foreseen at the time the contract was entered into, and which could not have been prevented by the affected party. In this article we will look at force majeure clauses and the legal position under English and Norwegian law.
The concept of force majeure comes from the French, meaning ‘superior forces’. Its core meaning is similar under both Norwegian and English law. Common examples include natural disasters, severe weather, government actions, war, terrorism, riot and strikes.
The language of force majeure clauses varies greatly, with some requiring that the contract performance must have been prevented by the event, whilst others include the lower threshold of being hindered or delayed. Minimum timing thresholds before an event can be considered an event of force majeure are also common.
THE EFFECTS OF A FORCE MAJEURE CLAUSE
There is great variety when it comes to the legal content and effect of force majeure clauses.
An event of force majeure will often result in the affected party being excused from liability for delay or non-performance of its obligations (such as liquidated damages) while the event is ongoing, with a corresponding extension of time for performance. The contract remains in force. Usually one or both parties may terminate the contract without penalty if the
force majeure event continues for a certain amount of time, usually three to six months. One exception is found in long-term gas sales agreements, where the remedy may be a temporary revision of the contract and/or an obligation to undertake additional investments. These provisions stem from a time when there were few buyers of gas and a contract termination had a feeling of “the end of the world” for the sellers.
Failure to comply with contractual notice provisions can have serious consequences. Generally, each party bears its own costs arising from the force majeure event, and claims under its own insurances for compensation.
The contractual protection continues only so long as the force majeure event itself does. Therefore, contractors must recommence performance as soon as it becomes possible to do so, or risk penalties for breach of contract.
THE POSITION UNDER ENGLISH LAW
Unlike many civil law countries, there is no implied application of the doctrine of force majeure under English law. Rather, the treatment of an event of force majeure comes from the contract. It is usual for English courts to apply contracts strictly, according to their wording and respecting the parties’ freedom to contract on terms they see fit. The parties may
choose a broad or narrow definition of force majeure, depending on their needs. Accordingly, careful and comprehensive contract drafting is particularly important. Generally speaking, the courts will seek to enforce the performance of a contract. Thus, the fact that a contract has become uneconomic or commercially impractical will likely not be considered a
force majeure event unless expressly provided for. The issue becomes one of proof – can the party relying on the force majeure clause show that the event it relies on is included in the clause. In this respect, because the clause is seen as a commercial solution rather than a legal one, it will be read in a natural way and not subject to the limitations that are used to reduce the scope of an exclusion clause.
In some (strictly limited) circumstances, the English law doctrine of frustration may provide relief where the force majeure
clause does not. In brief, this doctrine provides that if an event makes performance of a contract impossible, illegal or pointless, contract is “frustrated” and can be set aside. However, the criteria for this are difficult to meet, and the consequence of bringing the contract to an end may not be desirable for the parties.
THE POSITION UNDER NORWEGIAN LAW
The civil law concept of force majeure has a well-established understanding in Norway law, covering the typical scenarios
outlined above. It is recognised as both a statutory term and a contract term. Generally speaking, it can be seen to go further than the usual position under English law, with certain key differences. The 1980 United Nations Convention on Contracts for the International Sale of Goods (“CISG”) is incorporated into Norwegian law pursuant to section 87 of the Norwegian Sale of Goods Act (1988). The Sale of Goods Act applies to contracts concerning goods, and not contracts for the performance of work or services. The Act includes provisions implying no liability for damages if non-performance is based on force majeure, cf. sections 27, 40 and 57 (although there will liability if negligence can be demonstrated). The statutory conditions for force majeure follow the basic principles outlined at the start of this article. In effect, they serve to enforce “control liability”, meaning strict liability for obligations within a party’s control, and the possibility of a force majeure exception from liability for events outside a party’s control. The treatment of strikes in terms of statutory force majeure is therefore quite complicated under Norwegian law, and will depend on the nature of the strike. A national
strike will often satisfy the test, whereas a local strike may or may not have been foreseeable or preventable and might not be covered. Labour disputes are often explicitly regulated in the force majeure provisions of Norwegian sale of goods contracts, often defining strikes within the party’s organisation as a force majeure event. In the oil and gas industry it is also common to specifically define certain events as force majeure which may normally be considered within a party’s control, e.g. equipment failure, decline of gas wells and the exhaustion of personnel. Other pieces of legislation also refer
directly to force majeure, for instance the Petroleum Act (1996) section 7-3 third paragraph.
The various standard form Norwegian construction contracts also regulate the treatment of a force majeure event, and are typically in line with their usual treatment under Norwegian law.
However, although there is extensive practice and doctrine on such clauses, there remains a lack of clarity regarding what
constitutes force majeure, and what the effects of such situations are under Norwegian law. There is also a general risk that a unique set of circumstances resulting in a claim for relief based on force majeure are interpreted in a manner that was not anticipated by the parties, despite their understanding of the background law.
POINTS TO REMEMBER
The starting point under English law and Norwegian law alike remains the wording of the contract. An unconsidered use of boilerplate clauses can lead to unintended consequences. A relatively broader or narrower treatment of force majeure may be appropriate, depending on the nature of the contract and the relative obligations on either party to it. It is important to give special consideration to force majeure and its intended treatment during pre-contractual negotiations, even where standard form contracts include a boilerplate force majeure term, which are by their nature general terms, and possibly not sharply focused on the project under consideration.
Finally, it is worth remembering that where contingency or disaster-recovery plans can succeed in allowing the contract to
be performed despite the event of force majeure which would ordinary provide contractual relief, this can be instrumental in cementing commercial relationships and distinguishing a supplier from its competitors.