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06 January 2016
In contract law, 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 or prevented by the affected party. Common examples include natural disasters, severe weather, government actions, war, terrorism, riots and strikes. The language of force majeure clauses varies greatly, with some requiring the performance of the contract to have been prevented by the event, while others use the lower threshold of the performance being hindered or delayed. Minimum timing thresholds before an event can be considered as force majeure are also common.
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). 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 insurance for compensation. 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 civil law concept of force majeure is well established in Norwegian law, covering the typical scenarios outlined above. It is recognised as both a statutory and contract term.
The 1980 United Nations Convention on Contracts for the International Sale of Goods is incorporated into Norwegian law under Section 87 of the Sale of Goods Act (1988). The Sale of Goods Act applies to contracts concerning goods, not contracts for the performance of work or services. It includes provisions implying no liability for damages if non-performance is based on force majeure (Sections 27, 40 and 57), although there will be liability if negligence can be demonstrated.
The statutory conditions for force majeure follow the basic principles outlined above. In effect, they serve to enforce 'control liability' (ie, 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 depends on the nature of the strike. A national strike will often satisfy the test, whereas a local strike may 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 define certain events which may normally be considered within a party's control (eg, equipment failure, decline of gas wells and the exhaustion of personnel) specifically as force majeure.
Other pieces of legislation also refer directly to force majeure – for instance, Section 7-3, Paragraph 3 of the Petroleum Act (1996). 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, a lack of clarity remains regarding what constitutes force majeure and what the effects of such situations are under Norwegian law. There is also the general risk that a unique set of circumstances resulting in a claim for relief based on force majeure could be interpreted in a manner that was not anticipated by the parties, despite their understanding of the background law.
An unconsidered use of boilerplate clauses can lead to unintended consequences. The broader or narrower treatment of force majeure may be appropriate, depending on the nature of the contract and the obligations on either party to it. Special consideration should be given 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, where contingency or disaster-recovery plans can succeed in allowing the contract to be performed despite the event of force majeure which would ordinarily provide contractual relief, this can be instrumental in cementing commercial relationships and distinguishing a supplier from its competitors.
For further information on this topic please contact Ola Ø Nisja, Rob Jardine-Brown or Rita Allan at Wikborg Rein by telephone (+44 20 7367 0300) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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