The doctrine of “unforeseen circumstances” is one which has found its way into the Arab world’s contract law from French administrative law, where it is known as the doctrine of imprévision. Most Arab countries state the doctrine as a codal rule . In Oman, which does not have a Civil Code, the courts similarly recognise the principle as a rule of law.
The doctrine of “unforeseen circumstances” applies where exceptional circumstances which could not have been foreseen have led to an obligation becoming unduly oppressive, threatening the defaulting party with exorbitant loss, and in essence it permits the courts to step in and alter the terms of the parties’ contract with a view to restoring its initial economic equilibrium.
Prerequisites for doctrine to be invoked
For the doctrine to be invoked, the event which renders an obligation oppressive must satisfy each of the following four conditions:
(a) The event must be exceptional
An event is held to be exceptional when its occurrence is infrequent, irregular or rare. The event could be a natural one, such as unseasonal climatic conditions, or it could be a man-made one, such as new legislation, labour unrest, war, etc.
(b) The event must be unforeseeable
The question of whether an event is unforeseeable is to be measured objectively: would a normal person have foreseen it if he had been in the same position as the contracting parties when they entered into the contract? An approach taken by some writers is to consider whether the effects of the event in question, rather than the event itself, could have been foreseen.
(c) The event must be general in nature
This means that it must affect not simply the contracting parties. It must affect society generally, or at least all members of the relevant group in society.
(d) The event must occur during performance of the contract
This means that the event must take place after the contract has been entered into, and before performance is completed. If the unforeseen event occurs at a time which only falls within the performance period of the contract because one of the parties has delayed his performance, then such party will not be able to invoke the doctrine.
If performance merely becomes more troublesome than expected, without going as far as becoming oppressive, the doctrine will not apply. Whether or not performance has become oppressive is a matter of fact, and is to be determined objectively, that is without regard to whether the obligor happens to have substantial financial resources or otherwise.
Onus of proof and judicial intervention
The onus is on the party invoking the doctrine to prove not only that the four conditions above have been met, but also the causal link between them and the fact that performance has become oppressive.
If a claimant is successful in discharging this onus, the courts will seek to identify the extent to which the loss has become exorbitant. The party invoking the doctrine will still need to bear the normal and expected losses attendant on his performance. When the margin of exorbitance has been ascertained the courts will then decide how this is to be shared. In practice the courts tend to split that margin between the parties.
Counterpart rule in common law countries
In common law countries (such as England, India, Australia, USA) a similar function is performed by what are often referred to as “hardship clauses”. The difference between these and the civilian doctrine of “unforeseen circumstances” is that hardship clauses can only operate as contractual provisions, whereas the doctrine of “unforeseen circumstances” has effect as legislation or legal principle.
“Unforeseen circumstances” distinct from force majeure
Although the doctrine of “unforeseen circumstances” may appear at first glance to be very similar to force majeure there are fundamental differences, the principal one being that the courts are entitled to terminate a contract under the doctrine of force majeure, whereas they have only the power to alter the contractual obligations of the parties in the case of “unforeseen circumstances”. With regard to obtaining either of these remedies, a party seeking relief as a result of force majeure must demonstrate that the affected contractual obligation has become impossible to perform, as opposed to the lesser burden under the principle of “unforeseen circumstances” to prove that the obligation has become unduly burdensome.
Where “unforeseen circumstances” might apply
The current downward trend in oil prices combined with increased costs of financing raise the prospect of defaults in many arenas. The energy sector in the Middle East and North Africa is no exception. Around the world, we have already begun to see parties attempting to invoke force majeure provisions as a result of the adverse economic climate in order to escape their contractual obligations. The success of doing so has been limited partly due to the high standard of proof required to rely on force majeure provisions. In the Arab Civil Law jurisdictions, defaulting parties have available to them the alternative principle of “unforeseen circumstances”, which requires a somewhat lesser standard of proof than that found with force majeure. As such, it is quite likely that we will start to see a rise in cases involving “unforeseen circumstances”.