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.
- 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.
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.
- 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).
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:
- 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?
- 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. For further advice on the sufficiency of contractual clauses and the application of force majeure, please see the contacts below.