Recent civil unrest and violence in Libya raises grave political
and humanitarian concerns. The uncertainty within the region is
also a significant commercial issue; particularly for those in the
oil and gas sector. For contractors, producers and downstream
distributors, international sanctions and the evacuation of foreign
oil and gas employees from Libya raise questions concerning the
impact of the recent events on their contractual obligations and
their viable legal options in response.
Typically, in these circumstances, a party might turn to a force
majeure clause within their contract. Force majeure clauses have
long been included in commercial contracts to excuse
non-performance of contractual obligations when certain
circumstances occur. These circumstances normally include events
such as war, riots, and acts of God. As typically set out in the
contract, these circumstances are unforeseeable and outside the
control of the parties and, as a matter of course, must interfere
with the performance of the excused party's contractual
obligations.
Claiming force majeure is not without risk and may result in
international arbitration or litigation. In these circumstances,
the operation of a force majeure clause is complicated by the
Libyan Civil Code and its application by past arbitral tribunals
and the Libyan Supreme Court. Given the way that previous arbitral
tribunals have "supplemented" contractual clauses with
Libyan law, even parties with standard force majeure clauses should
consider whether a claim of force majeure would be considered valid
under Libyan law if the contract is governed by Libyan
law.
In light of the uncertainty, the application of force majeure under
Libyan law is considered below, together with an additional option
that any foreign party presently operating in Libya should
consider.
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Recent civil unrest and violence in Libya raises
grave political and humanitarian concerns. The uncertainty within
the region is also a significant commercial issue; particularly for
those in the oil and gas sector. For contractors, producers and
downstream distributors, international sanctions and the evacuation
of foreign oil and gas employees from Libya raise questions
concerning the impact of the recent events on their contractual
obligations and their viable legal options in response.
Typically, in these circumstances, a party might turn to a force
majeure clause within their contract. Force majeure clauses have
long been included in commercial contracts to excuse
non-performance of contractual obligations when certain
circumstances occur. These circumstances normally include events
such as war, riots, and acts of God. As typically set out in the
contract, these circumstances are unforeseeable and outside the
control of the parties and, as a matter of course, must interfere
with the performance of the excused party's contractual
obligations.
Claiming force majeure is not without risk and may result in
international arbitration or litigation. In these circumstances,
the operation of a force majeure clause is complicated by the
Libyan Civil Code and its application by past arbitral tribunals
and the Libyan Supreme Court. Given the way that previous arbitral
tribunals have "supplemented" contractual clauses with
Libyan law, even parties with standard force majeure clauses should
consider whether a claim of force majeure would be considered valid
under Libyan law if the contract is governed by Libyan
law.
In light of the uncertainty, the application of force majeure under
Libyan law is considered below, together with an additional option
that any foreign party presently operating in Libya should
consider.
Force Majeure And The Libyan Civil Code
The codified Libyan force majeure provisions are virtually the
same as in other Arab States – specifically those
situated in North Africa and the Middle East, including Egypt,
Syria, Yeman, Algeria, Kuwait, Qatar, Iraq and Jordan. These
provisions follow the Islamic principle of Al-Quwah
al-Qahira (see Libyan Civil Code, Articles 161, 168, 218, 259
and 360).
These force majeure provisions are not "public orders"
and may be varied or excluded by the contract between the parties.
However, even if the parties have included a contractual force
majeure clause, the Libyan provisions may still apply to supplement
the contractual clause if the court or arbitral tribunal deems the
clause unclear or insufficient. Courts and arbitral tribunals
typically have broad discretion in this regard and a pragmatic
commercial party should consider not just the force majeure clause
in their contract but also the relevant Libyan provisions when
considering a claim of force majeure.
The Libyan Civil Code and its past interpretation by the Libyan
Supreme Court and arbitral tribunals provide a three-part test to
be considered when looking at a potential force majeure event.
Accordingly, when interpreting a force majeure clause, the court or
arbitral tribunal may look to whether: (i) the event is beyond the
control of the parties; (ii) the event is unforeseeable; and (iii)
the event renders the performance of the contract
impossible.
(i)
Beyond the control of the parties
This test concerns the origin of the event, which leads to a party
seeking to invoke a force majeure provision. It is a
well-established principle that a party cannot rely upon its own
performance, mis-performance or non-performance of contractual
obligations as a force majeure event. An event cannot be seen as
force majeure if it was caused by the party seeking to invoke the
clause.
(ii) Unforeseeable
In order to qualify as force majeure, an event must be
unforeseeable to the parties at the time the contract is executed.
Although the standard clauses defining force majeure may cover acts
of God, war, terrorism and strike action, the implications of
concluding a contract in a politically unstable environment must be
borne in mind. Courts in other jurisdictions applying similar
provisions in similar situations have ruled that civil disturbances
were unforeseeable and constituted force majeure. However,
though typically an objective inquiry, Libyan courts and arbitral
tribunals applying Libyan law have broad discretion to consider
this issue on a case-by-case basis, relying on subjective facts and
potentially reaching different conclusions on a particular
event.
(iii) Performance
is impossible
Under Libyan law the test for the impossibility of performance is
stricter than analogous tests in other jurisdictions. Under the
application of Libyan law, the obligations of the claiming party
must be rendered actually and absolutely impossible for the force
majeure event to excuse non-performance. If there is any way that a
diligent party could have still performed its obligations, then
force majeure may be considered inappropriate.
This notion of actual and absolute impossibility stands in stark
contrast to lesser standards utilised by other legal jurisdictions
and contemplated by most force majeure clauses. The Libyan
formulation is more severe than the standards of other civil law
jurisdictions and even the most rigid of common law jurisdictions
do not insist on strict impossibility (for instance, allowing
apprehension of harm rather than actual harm to suffice in certain
cases). This distinction between actual harm and apprehension of
harm raises difficult questions for the recent evacuation of
foreign employees from Libya (addressed below).
Practical Considerations
Given the analysis above a party seeking to declare force
majeure in connection to recent events in Libya should focus on at
least two questions:
(1) Is the force majeure clause in the contract a clear,
unambiguous and self-sufficient clause that would exclude the
operation of force majeure under the Libyan Civil
Code?
(2) Are the obligations under the contract actually and absolutely
prevented by the present civil unrest?
In relation to the second question, this will require analysis of
the specific obligations under the contract, the resources
available to the defaulting party and the actual impact of the
civil unrest on commercial operations within Libya. Are there
alternative actions that may ensure obligations under the contract
are met? Is the claimed force majeure event based on an actual
event or a mere apprehension? For instance, in the case of oil
contractors recently evacuated from Libya, was the civil unrest an
absolute and actual impediment to the performance of contractual
obligations? Although the current sanctions imposed on Libya
exclude oil sales, the prospect of future sanctions in the sector
further complicates these questions.
An alternative to force majeure is the doctrine of hardship as
codified within the Libyan Civil Code. Hardship is a
principle of public policy and, because it cannot be excluded by
the parties, it will always apply. While not uncontroversial, the
requirements of hardship are significantly less burdensome than
those of force majeure. The remedy for hardship allows a court or
arbitral tribunal broad permission to revise the contract. This can
lead to unpredictable results and a party should determine its
ability to bear this risk before relying on this
option.
In summary, commercial parties and, in particular, international
energy companies should be aware of the special challenges that
Libyan law presents for dispute resolution in either a Libyan court
or an international arbitration and the appropriate commercial
options they have instead.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 08/03/2011.