I. INTRODUCTION

Almost every major international business contract contains a force majeure clause. This drafting practice is so widespread and has persisted over such a long period of time that the exoneration of a party due to a force majeure event ("Acts of God", "vis major") is the most prominent example of a transnational legal principle of the New Lex Mercatoria.¹ In the past, force majeure clauses were often boilerplate clauses, included in the contract without negotiation or amendment.² In recent times, these clauses have become increasingly sophisticated and detailed.³ However, their great popularity and increasing sophistication has not saved force majeure clauses from sharing the fate of other contractual clauses: more often than not, they are drafted in a manner that does not clearly reflect the will of the contracting parties. This includes the unequivocal definition of their scope, the clear formulation of the legal requirements of the force majeure defence and, above all, their relationship with comparable defences under the law applicable to the contract.⁴ The core question in this context is whether the clause is meant to be self-sufficient in the sense that the clause is to replace the force majeure provisions of the applicable law or whether the clause is merely intended to supplement these provisions of the applicable law.⁵ While in the first scenario, a court or arbitral tribunal would feel more inclined to detach the interpretation of the clause from the applicable domestic law, the latter scenario would provide an incentive to interpret the clause solely in the context of that domestic law.⁶

The fact that these clauses usually remain silent about their relationship with the applicable law has been identified as a characteristic feature of traditional clauses dealing with changed circumstances.⁷ That finding is surprising at best, given that a) exemption clauses are among the most important clauses to shape the risk-profile of international business contracts⁸ and b) the very reason why parties insert a force majeure clause into their contract is to create a greater degree of certainty as to their obligations and potential liabilities when faced with such events during the lifetime of the contract.⁹ In light of the fact that force majeure clauses are so widely used, the relationship of these clauses with trade usages¹⁰ or general principles of law¹¹ provides an additional challenge for international arbitrators.

The present contribution examines three ICC Awards in which the arbitral tribunals, beyond the resolution of the dispute before them, have endeavoured to shed some light on the correct approach in determining the relationship between the force majeure clauses on the one hand and domestic law, general principles of law, and trade usages on the other.

II. ICC AWARD NO. 4462

(National Oil Corporation v Libyan Sun Oil Company)

II.A. Summary of the Case

ICC Award No. 4462 of 31 May 1985¹² provides a perfect example of the difficulties that a tribunal is faced with when the parties have not clarified the relationship between the force majeure provision inserted into their contract and the force majeure rules of the applicable domestic law.

On 20 November 1980, Claimant, National Oil Corporation (NOC), a Libyan State enterprise and Respondent, Libyan Sun Oil Company (Sun Oil), a company incorporated in the USA concluded an Exploration and Production Sharing Agreement (EPSA). The EPSA obliged Sun Oil to undertake, finance and carry out an oil exploration programme in Libya. The EPSA was to be governed by and interpreted according to Libyan law and contained an ICC arbitration clause. The agreement was concluded for a term of 20 years and contained the following force majeure provisions:

Article 22—Force Majeure

22.1. Excuse of Obligations

Any failure or delay on the part of a Party in the performance of its obligations or duties hereunder shall be excused to the extent attributable to force majeure. Force majeure shall include, without limitation: Acts of God, insurrection, riots, war, and any unforeseen circumstances and acts beyond the control of such Party.

22.2. Extension of Term; Termination

If operations are delayed, curtailed or prevented by force majeure, and the time for carrying out obligations under this Agreement is thereby affected, the term of this Agreement and all rights and obligations hereunder shall be extended for a period equal to the period thus involved…

On 9 December 1981, the US Government issued a Passport Order declaring US passports no longer valid for travelling to Libya. With reference to this Passport Order, Sun Oil suspended performance and invoked the force majeure provision of the EPSA. It claimed that in light of the fact that all of its personnel consisted of US citizens, who were now unable to enter Libya, further performance of the EPSA had become impossible.

On 12 March 1982, the US Government issued an Export Regulation, which limited exports to Libya. The Regulation required Sun Oil to obtain a license in order to continue its operations in Libya but the company’s application for such a license was denied. Sun Oil then invoked Art. 22 of the EPSA again, stating that the Export Regulation constituted a further event of force majeure.

NOC, however, refused to accept any of these events as constituting force majeure and initiated arbitration proceedings before the ICC on 19 July 1982. On 31 May 1985, the ICC arbitral tribunal rendered a first award on the issue of force majeure in favour of NOC, which was followed by a final award on 23 February 1987 also in favour of NOC.¹³ Interestingly, the tribunal in the ICC Arbitration No. 5864 dealt with a similar scenario in which the President of the United States had issued an order enjoining US companies from working in Libya but reached the opposite conclusion.¹⁴

II.B. The Problem

The main difficulty for the arbitral tribunal in the ICC Case No. 4462 resulted from the fact that Art. 22, the force majeure provision of the EPSA, differed from Art. 360 of the Libyan Civil Code, a non-mandatory¹⁵ provision of the applicable law of the contract. Art. 360 of the Libyan Civil Code contains the following broad and general definition of force majeure:

An obligation is extinguished if the debtor establishes that his performance has become impossible by reason of causes beyond his control.¹⁶

The tribunal noted that pursuant to that provision as interpreted by the Supreme Court of Libya, force majeure is established only if an event has occurred that, a) is beyond the control of the parties, b) is unforeseeable at the time the agreement, out of which the parties’ duties to perform arise, is entered into, and c) renders the performance of the obligation of the non-performing party absolutely impossible. These requirements are in fact very similar to the general elements of force majeure clauses in international business contracts. Apart from a definition of eligible force majeure events in a specific or generic way or by way of a combination of both, such clauses typically contain the following requirements for any event that qualifies as force majeure under the definition contained in the clause:

• unforeseeability,
• unavoidability,
• uncontrollability and
• the effect of rendering a party’s obligation impossible.¹⁷

These requirements are now also reflected in Art. 1218 (1) of the French Civil Code.¹⁸ They are in line with international arbitral practice.¹⁹ Art. 22.1 EPSA, however, adopts only the first of the three constituting elements of the Libyan law on force majeure unaltered,²⁰ namely that the event must be beyond the control of the parties. Apart from that, the term "unforeseen" instead of "unforeseeable" is employed and instead of referring to the impossibility requirement of Libyan law, it merely provides that any default in performance shall be excused "to the extent attributable" to force majeure. Additionally, rather than referring to the absolute impossibility of performance, Art. 22.2 provides for an extension of term or termination of the contract if the original time schedule is "affected" by force majeure. Due to this wording of the provision it was unclear whether and, if so, to what extent the parties had intended to exclude the requirements of unforeseeability and impossibility of the applicable Libyan law.

II.C. The Views of the Parties

The parties agreed that the tribunal would need to look at the wording of the force majeure clause in Art. 22 of the EPSA to determine the intentions of the parties as to the relationship between the contractual force majeure framework and its conceptualization under Libyan law. They also agreed with the tribunal that the insertion of the force majeure clause in the contract demonstrated their intention to modify Art. 360 of the Libyan Civil Code. In this context, the tribunal observed "a certain trend, which is displayed to a greater or lesser extent in long term international contracts, to define force majeure less strictly than under most domestic contracts".²¹ The fact remained, however, that in the absence of express stipulation the extent of the intended modification or detachment from the applicable domestic law remained unclear.

The parties had diametrically opposing views as to how the tribunal should approach the determination of the relationship between the contractual clause and the statutory law in a case such as the one before the tribunal in which the parties have remained silent on that question. The parties’ difference of opinion related specifically to the meaning that should be attached to such silence.

Respondent Sun Oil argued that Art. 22 differed in a number of important respects from the "rigid legal doctrine" of the applicable Libyan law. In light of the parties’ silence as to the relationship between the Libyan law and the contract, Art. 22 should be qualified as "self-sufficient", i.e. as setting up "a specific force majeure regime, much more flexible and liberal than the one provided for under Art. 360 of the Libyan Civil Code".²²

Claimant NOC, on the other hand, took the opposite view. It argued that the parties are, in theory, capable of modifying the force majeure rules of the Libyan Civil Code. In the case before the tribunal, however, the parties’ silence must be taken to mean that they "did not expressly exclude any of the conditions required under Libyan law to establish force majeure". Consequently, Claimant maintained that "the parties are deemed to give [force majeure] the usual meaning", i.e. the one contained in the applicable Libyan law as construed by the Libyan Supreme Court. In other words, the conditions for force majeure established under the applicable Libyan law should be read into the contractual force majeure regime established in Art. 22 EPSA.²³

II.D. The Scope of Force Majeure Events

Using the wording of the clause as a starting point for its analysis, the tribunal noted that the clause does not specifically define the individual elements of the force majeure defence. The clause merely provides a generic description of what constitutes force majeure: "any failure or delay on the part of a party in the performance of its obligations or duties …", and a non-exhaustive list of events which shall fall within the scope of the force majeure clause: "Force majeure shall include, without limitation: … any unforeseen circumstances and acts beyond the control of such Party." In the eyes of the arbitrators, the "extensive" definition "… any … circumstances" demonstrated "without any doubt" the parties’ intention to extend the scope of force majeure events beyond the cases traditionally deemed to constitute an irresistible obstacle to performance. In international contract practice, these events include the ones specifically listed in the clause ("Acts of God, insurrection, riots"), as well as terrorist attacks, sabotage or piracy, strikes or boycotts, acts of governments, blockades, sieges or sanctions, accidents, fires, explosions, plagues, natural disasters and similar external events beyond the control of the parties.²⁴

II.E. The Tests of "Unforseeability" and "Impossibility"

While the tribunal’s linguistic analysis served to clarify the scope of force majeure events covered by Art. 22 EPSA and their legal consequences, it did not answer the vital question as to "how far … the parties intend[ed] to go in making this approach [used in the clause] more flexible" than the force majeure concept enshrined in Art. 360 Libyan Civil Code. This question relates in particular to the two remaining requirements under Art. 360 of the Libyan Civil Code, pursuant to which the force majeure event must be unforeseeable at the time the agreement out of which the parties’ duties to perform arise is entered into and must render the performance of the obligation of the non-performing party absolutely impossible.

II.E.1. Unforseeability test

Rather than adopting the Libyan Supreme Court’s interpretation of Art. 360 of the Libyan Civil Code, the parties did not require an "unforeseeable" event, but characterized the force majeure event under Art. 22.1 EPSA as "any unforeseen circumstances and acts beyond the control of such Party". In light of the parties’ use of the adjective "unforeseen" instead of "unforeseeable", the tribunal "did not exclude the possibility" that this choice may be taken to reflect their common intention to waive the unforeseeability requirement or at least, to apply the requirement less strictly than under Libyan domestic law. On this understanding, the fact that the defaulting party did not actually foresee a certain event at the time of the conclusion of the EPSA which it later invoked as a force majeure event would have justified the exemption from performance under Art. 22, even if that party could have foreseen the event in question.²⁵ Ultimately, the tribunal acknowledged that such an approach "would be difficult to admit, because it would result in allowing the enforceability of contractual obligations to be challenged upon the occurrence of the slightest difficulty".²⁶

II.E.2. Impossibility test

Following that careful approach, the arbitral tribunal stressed that the use of the adjective "unforeseen" in Art. 22.1. EPSA—especially read in conjunction with the remaining part of the provision—does not imply that any circumstance beyond the control of the parties would, if unforeseen, excuse non-performance regardless of what effect it has on the performance of the obligation. The tribunal once again examined the wording of the clause to determine the limits of the force majeure regime established by the parties in their contract. It held that the use of the word "attributable" ("… failure or delay … shall be excused to the extent attributable to force majeure") does not provide any indication as to the requisite effect of the force majeure event on the ability of performance of the relevant obligation. Rather, in the eyes of the tribunal, the parties, by using the term "attributable", merely wanted to underline the essential requirement of a "direct causal link" between the event invoked as a force majeure event and the non-performance or the delay in performing the obligation.²⁷

 

The tribunal then went on to contrast the clause at hand with force majeure clauses in other international long-term agreements.²⁸ It reasoned that such clauses increasingly expressly qualify force majeure events as "rendering the performance of the agreement very difficult and/or more expensive than anticipated" or as events "which cannot be overcome by the use of reasonable means at reasonable costs". While such wording leaves no doubt as to the intent of the parties to sidestep the impossibility of performance as the "sine qua non requirement of force majeure",²⁹ the clause at hand did not contain such or similar language.

The mere use of the word "affected" in the clause ("If operations are delayed, curtailed or prevented by force majeure, and the time for carrying out obligations under this Agreement is thereby affected, …") does not provide a clear indication as to whether the parties’ intended to waive the impossibility requirement of Art. 360 of the Libyan Civil Code. Under that provision, the fact that the event invoked merely resulted in rendering the performance of the obligation more difficult or more expensive, would not suffice to establish a force majeure defence. Rather, force majeure is only established when the event invoked by the defaulting party results in an "objective", "absolute" impossibility to perform, whether on a temporary or permanent basis, for a party similarly contractually liable and facing a similar situation as the defaulting party.³⁰ The tribunal held that in the absence of an express exception, however, Art. 22 EPSA could not be construed to exclude the essential requirement of Libyan private law, according to which the force majeure event must have rendered the performance of the obligation impossible.³¹ The tribunal justified that conclusion with the principle that "such exceptions to the common law of force majeure must be expressly provided for; they should not be presumed or implied".³² In ICC case No. 5864, the tribunal had reached the opposite conclusion. In that case, however, the very elaborate force majeure clause contained in the contract itself spelled out the impossibility requirement which is also part of Art. 360 of the Libyan Civil Code.³³

II.F. The Tribunal’s Final Conclusion

On the basis of this analysis, the tribunal reasoned that the force majeure concept in Art. 22 EPSA must be understood as "an unforeseen circumstance, beyond the control of the parties … which constitutes an obstacle such that an obligor, normally diligent, having the same obligations and placed in the same situation, could not have overcome it".³⁴ Under this definition, both the Passport Order and the Export Regulation of the US Government were insufficient to qualify as force majeure events.³⁵ Despite undeniably rendering the performance of Sun Oil’s contractual obligations more difficult, neither of them led to the impossibility of performance of its contractual duties. With respect to the Passport Order, the tribunal held that Sun Oil would have been able, and was entitled under the EPSA, to work with non-US personnel from within or outside its group and to organize management meetings outside Libya which could be attended by its own managerial personnel. With respect to the Export Regulation, the Tribunal concluded that rather than having to resort to, as is usually the case in such situations, a "theoretical reasonable person" to determine whether performance had become impossible, it could refer to other companies placed in the same circumstances as Sun Oil. The tribunal noted that two other US companies that were engaged at the same time as Sun Oil in similar explorations, under similar EPSAs, had not discontinued their activities on the basis of force majeure.³⁶ On the contrary, they had found ways to continue their exploration activities despite the Export Regulation although that Regulation was binding on them as it was binding on Sun Oil. The tribunal therefore held that Sun Oil could not successfully invoke the force majeure clause in Art. 22 of the EPSA and was thus not excused from its contractual obligations.

III. ICC AWARD NO. 19299

(Gujarat State Petroleum Corp. et al v Republic of Yemen et al)

III.A. Summary of the Case

In the dispute that was the subject of ICC Award No. 19299 of 10 July 2015,³⁷ Claimants—three petroleum exploration and production companies—had concluded three almost identical Production Sharing Agreements (PSAs) with the Ministry of Oil and Minerals of the Republic of Yemen on 13 April 2008. The PSAs concerned hydrocarbon exploration and production activities in Yemen and entered into force on 17 March 2009, the date when the first exploration period under the contracts commenced. The PSAs were governed by Yemeni law pursuant to the choice-of-law clause contained in Art. 24. In addition, a Yemeni law of 2009 provides that, due to their hybrid, public/private law nature,³⁸ these contracts also constitute Yemeni law and are therefore part of the legal system of Yemen.³⁹ The PSAs also provided in the relevant parts that:

Art. 22.2

‘Force Majeure’, within the meaning of this Agreement, shall be any order, regulation or direction of the GOVERNMENT, or (with respect to the CONTRACTOR) of the government of the country in which any of the entities comprising the CONTRACTOR is incorporated, whether promulgated in the form of law or otherwise, or any acts of God, insurrection, riot, war, strike (or other labour disturbances), fires, floods or any cause not due to the fault or the negligence of the Party invoking Force Majeure, whether or not similar to the foregoing, provided that any such cause is beyond the reasonable control of the party invoking Force Majeure.

Art. 22.4

If the Force Majeure event occurs during the First Exploration Period or the Second Exploration Period or any extension(s) thereof and continues in effect for a period of six (6) Months, thereafter the CONTRACTOR shall have the option upon ninety (90) Days’ prior written notice to the MINISTRY to terminate its obligations hereunder without further liability of any kind except for those payments accrued under this Agreement.

From January 2011 onwards, the security situation in Yemen deteriorated, with tribal clashes, attacks and kidnappings occurring on a regular basis. The Government declared a State of Emergency on 18 March 2011 and a number of governments issued travel advisories. On 23 March 2011, the Yemeni House of Representatives approved a finding of a State of Emergency which lasted for 41 days. The Claimants contended that these events fell within the definition of force majeure in Art. 22.2 of the PSAs. On 10 April 2011, they sent a force majeure notice to Respondents pursuant to Art. 22.4 of the PSAs. That notice was rejected by Respondents. After several unsuccessful meetings, Claimants terminated the PSAs pursuant to Art. 22.4. On 25 February 2013, Claimants initiated arbitration under the ICC arbitration clause contained in the PSAs and requested the tribunal, inter alia, to declare that an event of force majeure continuing for a period of six months had existed in Yemen and to declare that the PSAs had been validly terminated by Claimants.

III..B. The Problem

The tribunal was faced with problems relating to the interpretation of the force majeure clause in Art. 22.2 of the PSAs and its relation to the applicable Yemeni law that were very similar to the issues that the tribunal in the Sun Oil arbitration had to address. It is therefore not surprising that both Respondents and the tribunal made reference to the reasoning of the tribunal in the Sun Oil Award.

III.C. Force Majeure Events

The parties and the tribunal agreed that Art. 22.2 of the PSAs itself listed certain requirements that must be met for an event to be qualified as force majeure under the contract. In order to excuse non-performance under the force majeure defence in Art. 22.2, the relevant event must

• fall under the specific force majeure scenarios listed in the clause “any order, regulation of direction of the Government … or any acts of God, insurrection, riot, war, strike …, fires, floods …” or the catch-all clause “…any cause… whether or not similar to the foregoing …”,

• meet the two additional requirements specified in the clause that any such event must not be “due to the fault or the negligence of the Party invoking Force Majeure” and is “beyond the reasonable control” of that party, and
• must have caused the non-performance of the party invoking force majeure, i.e. Claimants.

 

The tribunal concluded that force majeure events within the meaning of the catch-all clause "any cause" under Art. 22.2 of the PSAs had occurred on numerous occasions and in multiple places, including in the relevant places in the Republic of Yemen between March 2011 and February 2013. Due to these events, Claimants were prevented from sending their personnel to Yemen and were thus unable to perform their obligations under the PSAs.⁴⁰

The tribunal came to this conclusion with particular reference to the official declaration of a State of Emergency by the Yemeni Government as of 18 March 2011 for 41 days which was based, inter alia, on riots in some cities, the advice issued by several states to their citizens to leave Yemen due to the "dangerous" situation there, two UN Security Council Resolutions expressing concerns about the "worsening security situation" and the fact that numerous other companies had declared "Force Majeure" on the basis of the deteriorating security situation in the country. The tribunal also emphasised that none of these events were caused by the fault or negligence of Claimants, nor were they within their reasonable control and that they prevented Claimants’ performance of their obligations under the PSAs.

Although the tribunal held that it would be sufficient for it to find that one of the events listed in Art. 22.2, such as those falling under the catch-all clause, had occurred in the parts of Yemen relevant for Claimants’ performance in the relevant period,⁴¹ the tribunal "for the sake of completeness" also determined whether the events would also qualify as "riots" or "insurrections", which are listed as specific force majeure events in Art. 22.2 of the PSAs.⁴²

It was in this context that the tribunal was first confronted with the question as to the influence of Yemeni law on the interpretation of the contractual force majeure clause. Respondents argued that, in light of the choice-of-law clause in the contracts, both terms should be interpreted in a way that is consistent with Yemeni law. The term "riots" should therefore be understood in the technical sense of "protests which are illegal [and have therefore been dispersed by the police following a declaration of open fire], not protests which fall within the legitimate right to protest or demonstrate enshrined in the Yemeni constitution".⁴³ Likewise, the term "insurrection" should be interpreted through the lens of Yemeni law. Consequently, it could only constitute a force majeure event under Art. 22.2 if it fell within one of the criminal acts of insurrection listed in the Yemeni Penal Code.⁴⁴

Claimants disagreed with Respondents’ formalistic view. They argued that both terms should be interpreted according to their plain meaning, i.e. by applying the linguistic understanding of that term in both English and Arabic, given that Art. 32 of the PSAs provided that "in any arbitration proceedings under [the PSAs], the Arabic and English versions shall be referred to in interpreting [the PSAs]". The term "riot" should therefore be interpreted as "an unlawful disturbance of the peace by a number of people" (English meaning) or as "any civil disturbance or civil unrest, regardless of reason or cause" (Arabic meaning). Likewise, the term "insurrection" should be given its plain meaning by the tribunal as "a situation in which someone refuses the obedience of an order, regularly paired with the aim to weaken the position of an established authority regardless of the means" (English meaning) or as a "disobedience against the established authority or government, whether or not arms are used" (Arabic meaning).⁴⁵

The tribunal held that the primary purpose of its interpretation of Art. 22.2 of the PSAs is to give full effect to the meaning of the terms used by the parties in Art. 22.2. While the tribunal acknowledged that the PSAs were part of the Yemeni legal system,⁴⁶ it also assumed that the parties most likely did not refer to a dictionary or considered the specific technical meaning of such terms under Yemeni law at the time of drafting and concluding the contracts. Therefore, the "common (ordinary/plain) meaning of terms" should be applied.⁴⁷ This is in line with international arbitration practice, where arbitral tribunals seek to determine the meaning that reasonable parties of the same kind as the parties would give to a contractual term in the same circumstances, taking into account, in particular, the meaning commonly given to contract terms and expressions in the trade concerned.⁴⁸ Adopting this approach, the tribunal applied the common and rather generic meaning of the term "riot" as "a disturbance of peace and order by several people acting together". It concluded that such riots had in fact taken place in those parts of Yemen that were relevant for Claimants’ performance of their obligations under the PSAs between March 2011 and February 2013.⁴⁹ The tribunal further noted that even adopting Respondents’ position that the meaning under Yemeni law should be applied, the result would not be different because a) there is no legal definition of the term "riot" under Yemeni law and b) Respondents had not cogently explained why the incidents in question would not constitute riots if the Yemeni legal meaning of the term is applied. The tribunal reached the same conclusions with respect to the meaning of the term "insurrection" which the tribunal understood to commonly mean "a violent revolt against authority or government".⁵⁰

III..D. Additional Requirements: Unforeseeability and Impossibility?

As in the Sun Oil arbitration, the parties disagreed as to whether the additional requirements of the applicable Yemeni law had to be read into the contractual force majeure clause. Respondents made reference to the Sun Oil Award and argued that force majeure clauses in production sharing agreements cannot be interpreted independently of the applicable law. As the PSAs are "Yemeni law contract[s],⁵¹ … the whole of Art. 22 must be read with Yemeni eyes, and with the Yemeni law concepts in mind".⁵² The Yemeni law concept of force majeure, however, requires proof that the relevant events were unforeseeable and that performance has become impossible. Respondents argued that the same conclusion would follow from the principles of good faith and good will which, they argued, apply to both the interpretation and performance of the contracts pursuant to Art. 23.10 of the PSAs.

Claimants rejected that view. They argued that all they needed to show is that the requirements of Art. 22.2 are met, whereas other requirements of general Yemeni law are irrelevant. In support of that view they referred to the clear and exhaustive language of Art. 22.2 and maintained that this language "clearly proves the parties’ intent to design a bespoke force majeure clause" for which they chose to retain certain elements of the Yemeni force majeure concept ("beyond the control"), but not others such as unforeseeability and impossibility. According to Claimants, the fact that the parties had the intention to insulate the contractual force majeure concept from the applicable Yemeni law also followed from the fact that, unlike other clauses of the PSAs, the parties did not make reference to Yemeni law in Art. 22 and that other provisions dealing with the contractor’s right to invoke force majeure made it clear that this is a right solely governed by the PSAs.⁵³

The tribunal rejected Respondents’ argument that additional legal requirements, (such as unforeseeability or impossibility) should be read into Art. 22.2 of the PSAs and concurred with Claimants that there is neither scope, nor need to imply Yemeni law requirements into Art. 22.2.⁵⁴ For the tribunal, the language used in the clause was clear because the parties had used specific and precise wording to describe those force majeure events that would fall within the ambit of the clause. That language included some requirements of Yemeni law on force majeure ("beyond reasonable control"), while leaving out others, such as unforeseeability. In light of this clear language used by the parties, the tribunal had no doubts that the parties had agreed in Art. 22.2 on their own "custom-made" and self-contained definition of force majeure.⁵⁵ Implying additional requirements of Yemeni law into the clause would impose an additional burden on Claimants which was not envisaged by the parties when they concluded the contract.⁵⁶ That reasoning might seem surprising given that the tribunal had acknowledged that the PSAs were part of the Yemeni legal system.⁵⁷

 

However, the tribunal found further support for its conclusion in the rule that the PSAs are meant to be the exclusive source of the parties’ respective rights and obligations in Art. 18.2 of the PSAs. This provision states that the interests, rights and obligations of the parties "shall be solely governed by the provisions of this Agreement".⁵⁸ In line with that rule, whenever the parties nonetheless wanted to introduce Yemeni law, they had used specific language to that effect in various provisions of the PSAs. Because of that drafting technique and the fact that the contract was drafted by Respondents themselves,⁵⁹ the tribunal rejected Respondents’ argument that general Yemeni law should guide the interpretation of its clauses unless the parties have contracted out of that law.⁶⁰

The clear and conclusive language of Art. 22.2 of the PSAs was also the decisive element on which the tribunal distinguished the present case from the factual setting in the Sun Oil case, so that the Sun Oil Award had only limited persuasive value for the tribunal. While in Sun Oil, the tribunal found the force majeure clause to be non-exhaustive and vague ("Force Majeure shall include, without limitation…"),⁶¹ the tribunal in this case found that the force majeure provision of Art. 22.2 was clear and conclusive ("Force majeure shall be…"). While this linguistic aspect alone would have sufficed to distinguish the present case from the Sun Oil Award, the tribunal hinted at an additional aspect that, unlike the parties in the Sun Oil case,⁶² the parties in the present proceedings agreed that Art. 22.2 of the PSAs required that the force majeure event in question must have caused the Claimants’ non-performance.⁶³

The tribunal also emphasised that a different result could not be reached by reference to the general notions of good faith and good will which were referred to in Art. 23.10 of the PSAs as the basis "of [the parties’] … relationship under this Agreement". The tribunal argued that these principles are not meant to enable arbitrators "to second-guess what the Parties could have added to their common understanding, including, if that should be the case, by reference to provisions of Yemeni law to which the Parties did not refer, not even impliedly".⁶⁴ This is in line with international arbitral case law which considers good faith and fair dealing as a flexible behavioural standard, rather than an abstract guideline for the interpretation of a contract.⁶⁵ Just as an ultimate precautionary measure, the tribunal concluded that even if the additional requirements proposed by Respondents were introduced into Art. 22.2 of the PSAs, those requirements would have been satisfied.⁶⁶

IV. ICC AWARD NO. 8873

(French claimant v Spanish respondent)

IV.A. Summary of the Case

ICC Award No. 8873 of 1997⁶⁷ concerned a dispute between a Spanish company and a French company. The parties had concluded a contract for the construction of a road in Algeria by the French contractor. The contract provided for the application of Spanish law and contained a force majeure clause in Art. [x]. During construction, the parties amended the initial contract adjusting the schedule and milestones for the completion of the construction project. Also during construction, the contractor was faced with a number of unforeseen difficulties which occurred, or their effects only became apparent, after the date of the amendment contract. Some of these problems were caused by political, others by economical and natural, events in Algeria. The contractor argued that irrespective of their cause, these events, which led to delays in the finalisation of the construction project, must be qualified as force majeure pursuant to Art. [x] of the construction contract. Nonetheless, the Spanish employer imposed penalty payments on the contractor provided for in the construction contract in case of delay of the works, by deducting these amounts from the contract price it had to pay to the French contractor. At the same time, the French contractor incurred extra costs to overcome the difficulties caused by the unforeseen events. The French contractor initiated the ICC arbitration seeking an order for both a reduction of the penalty payments and reimbursement of the extra costs from the Spanish employer.

IV.B. The Problem

Claimant based its claim on a number of legal grounds which included the applicable Spanish law, the force majeure clause in the contract, standard forms typically used in the construction business, international restatements of contract law as well as customs and general principles of transnational business law. The case therefore addressed basic questions as to the relationship between these various legal sources in a single case, as well as the interpretation of the force majeure clause in the contract. The tribunal noted that in international arbitration, the task to determine this relationship presents itself in a particular fashion, which is reflected in Art. 21 (2) ICC Arbitration Rules⁶⁸ as well as Art. VII of the European Convention on International Commercial Arbitration.⁶⁹ Both of these provisions call upon arbitral tribunals to consider the stipulations of the contract concluded between the parties and the relevant trade usages. With respect to the latter provision, the tribunal noted:

…the Geneva Convention has established, in its Article VII, an internationally uniform principle which applies in lieu of domestic law provisions on the same subject and which grants arbitrators a larger margin of appreciation when it comes to the determination of the role of usages. That rule allows arbitrators to attribute a more important role to trade usages and consequently to rules that have been customarily established at the international level, by companies engaged in international commerce, the only limit being set by the mandatory provisions of the applicable law.⁷⁰

While acknowledging this transnational principle of international arbitration practice, the tribunal emphasised the significance of another important guideline: in the absence of specific contractual clauses, the determination of applicable trade usages that apply in the absence of corresponding contractual stipulations by the parties, must be conducted diligently by the tribunal to avoid "surprise" situations in which the parties find themselves bound by rules, the application of which they could not reasonably have been aware of when they concluded their contract.⁷¹ That balanced approach is reflected, inter alia, in Art. 9 (2) CISG which provides that

…the parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned (emphasis added).

 

Comparable rules are contained in other UN conventions on international trade law such as Art. 11 (3) UN Convention on the Assignment of Receivables in International Trade and in Art. 1.9 (2) of the UNIDROIT Principles of International Commercial Contracts (UPICC).⁷²

The tribunal had to determine the proper relationship between the contractual force majeure clause, the force majeure provisions of the applicable Spanish law and the rules on force majeure prevailing in international contract practice. Its analysis was guided by its endeavour to protect the parties’ legitimate expectations as to the applicable force majeure regime. The tribunal was particularly sensitive to the parties’ expectations in relation to the application of rules and practices which were not laid down in the force majeure clause in Art. [x] of the construction contract.⁷³ In fact, protection of these party expectations with respect to the applicable rules is a fundamental guideline of arbitral decision-making in general.⁷⁴ It is for this reason that in the absence of a contrary indication within the force majeure clause, an interpretation which is in line with general standards of international contracts is to be preferred to an interpretation that blindly follows the requirements of the applicable law.⁷⁵

IV.C. The Penalty

The Claimant argued that the penalty payments claimed by respondent were not justified or had to be reduced by the tribunal on a pro rata basis, because the delays were caused by circumstances which qualified as force majeure events under Art. [x] of the contract. The argument that a party is not liable under a penalty clause if it is faced with a force majeure event is in line with international arbitration practice.⁷⁶ It is also in accordance with international contract doctrine, according to which force majeure provisions of the applicable law or contractual force majeure clauses should also be applied to agreed payments for non-performance such as those claimed under a penalty clause, because, in the absence of indications to the contrary, it may be presumed that the obligor does not want to assume the relevant risk of such events.⁷⁷ That position is also enshrined in some domestic laws, such as Art. 163 (2) Swiss Code of Obligations which provides that a "penalty may not be claimed … where performance has been prevented by circumstances beyond the debtor’s control".⁷⁸

IV.C.1. The Force Majeure Clause and its relationship with the applicable domestic law

The tribunal acknowledged that the primary basis of Claimant’s defence against Respondent’s penalty payment claims is the force majeure clause in Art. [x] of the construction contract. The tribunal noted that the clause, while providing for specific force majeure events, does not stipulate an exhaustive definition of force majeure. Rather, the clause lists further legal requirements which a force majeure event must meet, namely that a) the relevant event must lead to a situation in which "performance [by the party invoking force majeure] is prevented, delayed or rendered impossible" and b) that the event must be "beyond the reasonable control of such Party".

As to the relationship with the applicable Spanish law, the tribunal held that the requirement of unforeseeability, which according to the tribunal "constitutes an essential element of force majeure in many jurisdictions" including under Art. 1105 of the Spanish Civil Code, did not apply in the present case because it was not expressly mentioned in the force majeure clause. As a result, situations that were foreseeable at the time the contract was concluded, could be qualified as force majeure events under the clause, provided the other express requirements of the clause are met.⁷⁹

The tribunal also dealt with the questions of whether the principle of perpetuatio obligationis, contained in Art. 1096 (3) of the Spanish Civil Code,⁸⁰ excludes Claimant’s force majeure defence. According to that provision, a debtor who delays his performance carries the risk of fortuitous events happening during that delay and is not entitled to rely on force majeure as an excuse for this delayed performance. The tribunal considered it doubtful whether that provision of Spanish law applies to construction contracts (contrato de obras) such as the one before it. Irrespective of that doctrinal issue, the tribunal found the provision to be inapplicable in this case based on the fact that

by providing for a detailed force majeure clause like the one in Art. [x] of the contract, inspired by the current international contract practice, the parties have shown their desire to submit to a force majeure regime that is relatively autonomous, which implies their tacit intention to exclude the application of the dispositive provisions of the applicable domestic law that do not correspond to the usual [international contract] practice like Art. 1096 (3) of the Spanish Civil Code.⁸¹

IV.C.2. Force majeure events

The tribunal provided a detailed analysis of the various events on which Claimant based its force majeure argument and rejected most of them, albeit for different reasons.

The first force majeure event which, according to Claimant, justified the delays in the performance of the works and a reduction of the penalty imposed by Respondent, was the "climate of insecurity" in Algeria during the construction of the road. Claimant argued that this climate was created by terrorist attacks against foreigners in Algeria, especially against French citizens, and that this lead to a substantial delay of the works to be performed by Claimant. The tribunal rejected that argument for a number of reasons:

a. Like all other companies working in Algeria at that time, Claimant had been aware of the situation when it concluded the contract and had accepted the related risks as of that date.

b. Claimant was unable to prove that these events posed an insurmountable obstacle to the performance of their obligations.

c. Measures taken by the Algerian Government to improve the security situation in the region, in particular through the creation of exclusive zones and stricter controls by the Algerian military, provided "a climate of relative security" at the construction site since the conclusion of the contract, and

d. Claimant did not, as required by the force majeure clause in the contract, notify Respondent of the specific circumstances which it qualified as force majeure, but had merely complained in a general fashion about the alleged "climate of insecurity".⁸²

With respect to the notification requirement, the tribunal reasoned that, while it must be applied with flexibility⁸³, the contractual notification requirement nonetheless means that events that have not been communicated by the party invoking force majeure to the other side when they occurred or are described only in general terms, cannot be taken into account by the tribunal.⁸⁴

The tribunal held, however, that Claimant had complied with this notification requirement with respect to the degradation and temporary closure of a national road used for the transport of materials to the construction site. The tribunal qualified these events as force majeure and estimated that a period of 15 days of the delay was not attributable to Claimant for these reasons. The difficulties encountered by Claimant in the procurement of asphalt caused by the interruption of production at their suppliers’ factories in Algeria, which it also invoked as a force majeure event, were likewise accepted by the tribunal. The tribunal estimated that a further period of 20 days of the delay was not attributable to Claimant due to this force majeure event.

Other events invoked by Claimant, such as "other difficulties related to the general context in Algeria" (e.g. difficulties in recruitment of personnel, supply of material, etc.), natural events like sand storms and heavy rain, and the alleged incorrect use of the road by the employer and its sub-contractors (in violation of the instructions for use given by Claimant) were rejected by the tribunal for lack of sufficient proof of the events as such, of their insurmountable character and/or of their causal nexus with the delays.⁸⁵

IV.D. Reimbursement of Extra Costs

The contractor based its claim for the reimbursement of extra costs allegedly caused by the force majeure events on

the principle that the contractor, when faced with force majeure events, is not only exonerated from his obligation to perform to the extent that this impossibility is caused by the force majeure events but may also claim reimbursement of the extra costs incurred by him to overcome the consequences of that situation.⁸⁶

The tribunal noted that neither the contractual force majeure clause, nor the applicable Spanish law on force majeure contained such a principle. In fact, contractual force majeure clauses are often silent on this point. Some clauses even expressly exclude the parties’ right to claim compensation from the other side for extra costs incurred in force majeure situations.⁸⁷ The Iran-US Claims Tribunal has developed a rule according to which "[a]bsent a contractual provision to the contrary, costs incurred as a result of force majeure normally are the responsibility of the party on whom they fall…"⁸⁸ Claimant, however, argued that such a principle for the reimbursement of costs in force majeure situations follows from the provisions in the FIDIC Conditions of Contract for Works of Civil Engineering Construction⁸⁹ and ENAA Model Form International Contract for Process Plant Construction⁹⁰ standard form contracts. Due to their frequent use in international contract practice, the principle contained in these standard form contracts should apply to the contract in dispute even though the parties had not agreed on their application.

The tribunal rejected this argument. Given that the parties had not agreed on the application of these standard forms in their contract, the principle could only apply insofar as it constitutes a trade usage. The tribunal qualified ‘trade usage’ with two cumulative conditions:

• the relevant rule must be qualified as a solution established in trade practice with a sufficient degree of uniformity to justify their direct application without the necessity of prior agreement or negotiation of other elements; and
• it must be proven that the principle is applied by companies in the relevant branch of trade even in the absence of an express stipulation in the contract.⁹¹

The tribunal thereby made it clear that it understood the notion of trade usages in a narrow, fact-driven sense to mean a practice in a particular branch of trade which is considered binding by all participants in that particular industry.⁹² In fact, a number of ICC awards have understood the notion of trade usages in that narrow and traditional sense and have reverted to trade usages as a means to fill contractual gaps and clarify any ambiguities.⁹³

The tribunal, however, held that neither of these conditions was fulfilled in respect to a reimbursement claim and it therefore does not constitute a trade usage. As to the first requirement, the tribunal noted that under the two sets of standard form contracts to which the Claimant made reference, the contractor only has a reimbursement claim in very special situations. These situations also differed from one set of standard terms to the other. In the view of the tribunal, this diversity clearly shows that the contended cost-reimbursement rule still lacks the necessary "maturity" to be accepted as a trade usage that would apply irrespective of an agreement by the parties. It would also be "absurd" to apply these provisions in isolation in cases in which the application of the standard forms has not been agreed upon by the parties. According to the tribunal, the reimbursement rules in the FIDIC and ENAA standard form contracts constitute an integral element of a well-balanced system of rights and duties of the parties set out in these standard form contracts. That system intends to establish an "equilibrium of interests" between the parties. According to the tribunal, such an equilibrium could not be established through the isolated application of the reimbursement principle enshrined in certain provisions of these standard form contracts without, at the same time, negotiating a series of supplementary contractual provisions necessary to create that equilibrium.⁹⁴ Therefore, the relevant provisions in the standard form contracts must be qualified,

at least for the moment, as purely contractual solutions which cannot be used outside the context of the standard form contracts into which they are so closely integrated.⁹⁵

This approach of the tribunal is in line with other ICC awards which have held that uniform instruments, including standard form contracts, may serve as proof of a widely accepted practice in a certain industry only if the generality of the alleged trade usage is clearly reflected in those instruments.⁹⁶ Put differently, while standard conditions as a whole may be characterised as forming an integral part of an existing trade usage,⁹⁷ a standard form contract alone is not necessarily full-fledged proof of the existence of a specific usage. The tribunal followed that view with respect to the very specific, narrow and isolated remedy of reimbursement of costs in force majeure scenarios, which, in both sets of standard form contracts, forms an integral part of a larger scheme of rights and duties of the parties in force majeure situations.

 

As to the second requirement, the test of the acceptance of the rule by the relevant business community,⁹⁸ the tribunal noted that Claimant was unable to prove that parties in the construction business would consider themselves bound by a rule requiring the employer to reimburse the contractor for extra costs incurred, in the absence of a contractual provision stipulating such a claim.

As an alternative basis for its reimbursement claim, Claimant invoked Art. 6.2.3 (4) (b) of the UPICC which allows a court or arbitral tribunal to adapt the contract to restore equilibrium in hardship situations. Art. 6.2.2. UPICC defines hardship as the "occurrence of events [that] fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished".⁹⁹ To determine whether the UPICC could be applied in the present case, the tribunal looked at the various options listed in their Preamble. Given that the parties had not expressly agreed on their application and that their choice of Spanish law clearly showed their intent not to have their contract governed by "general principle of law, the lex mercatoria or the like", the tribunal considered that the only option of applying the UPICC was if they qualified them as a "codification of existing usages".¹⁰⁰ While the tribunal had used a narrow notion of trade usage to reject the application of the reimbursement rule contained in the FIDIC and ENAA standard form contracts,¹⁰¹ it obviously resorted to a much wider notion which includes general principles of law in the present context.¹⁰² Unsurprisingly, the tribunal rejected the application of the hardship provisions in the UPICC with arguments similar to those with which it had rejected the application of the reimbursement provisions contained in certain international standard forms:

[the hardship principle] constitutes a totally exceptional principle which finds acceptance only in the context of contractual clauses which determine in great detail the situations of hardship as well as the consequences thereof. It is therefore impossible to consider the provisions on hardship contained in the UPICC as trade usages. To the contrary, these rules do not correspond, at least at the present moment, to the current practice of international commerce and can only be applied when the parties have expressly referred to them in their contract which they did not in the present case.¹⁰³

The same conclusion was reached by the tribunal in ICC Award No. 13284.¹⁰⁴ Other ICC tribunals have held that the UPICC should be applied only to the extent that "they can be considered to reflect generally accepted principles and rules".¹⁰⁵ In the present case, the tribunal’s refusal to apply the hardship provisions of the UPICC was mostly driven by the tribunal’s general endeavour to protect the legitimate expectations of the parties with respect to the application of rules and practices which were not laid down in the contract¹⁰⁶ and to the parties’ choice of Spanish law as the law governing the contract. In fact, while hardship is an "innovative" and—at least from the perspective of common lawyers—"new" international concept,¹⁰⁷ it is also, to an increasing extent, accepted as a general principle of commercial law,¹⁰⁸ albeit as a strict and narrow exception to the fundamental notion of sanctity of contracts.¹⁰⁹ However, arbitral tribunals should not readily supplant the applicable domestic law with general principles of law such as those incorporated in the UPICC under the guise of trade usages.¹¹⁰

 

Consistent with this view favouring domestic rather than transnational law, the tribunal then went on to examine the provisions and case law on the re-establishment of the contractual equilibrium in exceptional cases pursuant to the principle of clausula rebus sic stantibus contained in the applicable Spanish law. It concluded that the events invoked by Claimant did not justify the application of that principle in the present case.

V. CONCLUSION

The three ICC Awards discussed in this contribution reveal that international arbitral tribunals are mindful of the significance of force majeure clauses in international business contracts. All three tribunals acknowledge that the wording of the clause must be the starting point for any determination of the meaning, scope and legal consequences of a force majeure clause. The tribunal in ICC Award No. 19299 made it clear that the purpose of such interpretation must always be to give full effect to the meaning of the terms used by the parties. In doing so, the tribunal held that arbitral tribunals should refrain from introducing concepts of the applicable law through the backdoor of contract interpretation or by application of such vague concepts as good faith or good will. Instead, they should always seek to establish the common, i.e. ordinary/plain meaning of the terminology used by the parties in the force majeure clause. It is in this context that general international contract principles relating to force majeure may have an impact on the tribunal’s interpretive task.¹¹¹ The awards also confirm the trend identified by the tribunal in ICC Award No. 4462, that such clauses usually seek to establish a force majeure regime that is less strict than that of the law applicable to the contract.

Uncertainties will remain, however, if the parties have not clarified the relationship between the contractual force majeure framework and the relevant provisions of the law governing the contract in the clause itself. That silence was interpreted by the tribunal in ICC Award No. 4462 to mean that exceptions to the impossibility requirement under the applicable law must be expressly provided for in the clause; they should not be presumed or implied. Other tribunals, however, have taken the opposite approach. The tribunal in ICC Award No. 19299 held that implying additional requirements of the law applicable to the contract into the clause when the parties have remained silent on that question would impose an additional burden on the parties which was not contemplated by them when they concluded the contract. In that case, the tribunal found support for its conclusion not only in the clear language of the clause, but also in the exclusive remedy-clause in the contract. The tribunal in ICC Award No. 8873 went a step further and employed a general guideline that has been utilised by other ICC tribunals to determine the degree of acceptable interference of external rules (of whatever nature) in the system of contractual rights and duties established by the contract: international arbitral tribunals, whose jurisdiction is based on the will of the parties, must protect the legitimate expectations of those parties, especially with respect to the application of rules contained in the applicable law, derived from trade usages or general principles of law which are not laid down in the force majeure clause. Parties may have the confidence that arbitral tribunals in future cases will adopt that same cautious approach when it comes to the determination of the relationship of the contractual force majeure regime and the applicable law. However, parties that seek to insulate their contractual force majeure regime from the uncertain influences of the applicable law are well advised to take the necessary precautions at the drafting stage. They should clearly stipulate the specific relationship of that clause with the corresponding concept in the law applicable to the contract.¹¹²

Supplementing a contractual force majeure clause with such a clarification is highly recommended, particularly in light of the potential creativeness of some parties—as exemplified in ICC Award No. 8873—in trying to establish a basis (in the applicable law, trade usages, general principles of law and international restatements) for the interference with a contractual force majeure regime that was meant to be self-sufficient and conclusive at the time the contract was concluded.

 

 

 

 

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