Expert Guide on Force Majeure and Unforeseen Circumstances in the Context of Global Trade War in Norway

Force majeure normally refers to external, extraordinary events that cannot be foreseen by the parties. Typical force majeure events are the outbreak of war, rebellion, blockade, seizure, fire and (nationwide) strikes or lockouts. However, the concept of force majeure is not uniformly defined, and what qualifies as a force majeure event can vary depending on the type of contract. A common denominator, however, is that the impediment to fulfil the contractual obligations must be beyond the reasonable control or influence of the debtor.

As a starting point, the risk of increased costs due to tariffs and other government measures is not considered force majeure. Instead, this is a risk that normally is negotiated and regulated within the provisions of the contract. Norwegian courts typically do not reallocate risks established in a contract, even if the terms cause financial difficulties for one of the parties. It would require significant circumstances for a cost increase due to higher tariffs to be considered a force majeure event.

Force majeure may be invoked both as a statutory concept and as a contractual provision to release parties from their contractual obligations. Even if a commercial contract lacks a force majeure clause, a force majeure event may still be invoked based on statutory principles. That said, the traditional and statutory definition of force majeure under Norwegian law might differ from a more bespoke definition of force majeure included in a commercial contract, where the parties are free to agree upon the definition. There are examples of import/export restrictions being explicitly defined as force majeure, but this is not typically the case. Hence, whether the imposition of import tariffs is considered a force majeure event is closely dependent on how force majeure is defined in the relevant contract and requires a specific interpretation of the contract in question.

Historical Norwegian case law arising after World War I and II has established the term “economic force majeure”, suggesting that a substantial increase in the price of raw materials and operating assets, which completely disrupts the financial conditions of a contract, could justify requesting an adjustment of the seller's obligations. However, the assumption is that maintaining the contract without price adjustments would constitute a significant financial sacrifice. The general rule remains that when selling at a fixed price, the seller assumes the risk of any unexpected price increases.

Lastly, kindly note that the application of a force majeure clause typically does not entitle the supplier to adjust prices upwards due to increased costs. It merely suspends the obligation to deliver as agreed during the force majeure event, excluding any liability for damages related to delays. Therefore, it may temporarily relieve a seller from having to sell at a loss but does not grant the right to sell at a profit. Only in exceptional cases and for long term supply contracts has force majeure led to claims for increased remuneration. 

The starting point for considering contract revision due to changed circumstances should be a legal interpretation of the contract's own provisions. Many contracts include clauses to regulate changed conditions, either to restore balance or to terminate the contract. In the absence of such provisions, the following alternatives are available under Norwegian law:

• The Norwegian Act relating to conclusions of contracts contains a general clause in Section 36, designed to prevent unfairness. It provides courts the authority to modify or nullify terms that are deemed unreasonable or unjust, ensuring that contracts are equitable and protect parties from exploitation or undue hardship. One of the key elements of Section 36 is that it permits the revision of contracts when subsequent circumstances make it unreasonable to require fulfilment of the contract.  However, the threshold for contract revision is high, meaning that only clear and significant unreasonableness will be affected. For contracts between commercial parties, a particularly substantial level of unfairness is required. In practice, the Norwegian Supreme Court has been very reluctant to apply Section 36 to commercial contractual relationships. The overall impact of the contract must be assessed. When determining whether one or more agreed terms or the entire contract is unreasonably unfair, key factors include irregular developments, changed assumptions, and the financial effects on the parties at the time a claim for change is made. The application of Section 36 is therefore subject to a detailed evaluation of whether the terms and conditions of a contract are fair and reasonable, considering the specific circumstances and context of the contract.
• Closely related to Section 36 of the Norwegian Act relating to the conclusion of contracts is the non-statutory doctrine of failed assumptions. According to this doctrine, a contractual obligation may be wholly or partially cancelled if the fundamental assumptions on which the contract is based are no longer present. An increase in remuneration due to irregular developments in long-term contractual relationships has been deemed authorized by the doctrine of failed assumptions. Typical cases are when there is a financial mismatch between the parties’ performance under the contract. This is typically due to economic fluctuations, often associated with force majeure-like events.

There is not a distinct line between force majeure, Section 36 and the non-statutory doctrine of failed assumptions. All three sets of rules serve as independent legal bases for the modification of contractual obligations in the event of unexpected changes in circumstances. At the same time, it must be emphasized that the main rule remains that contracts must be honoured, and there must be compelling reasons to justify a contract revision. Contract revision cannot be considered solely because the contract has become so unfavourable to one party due to subsequent circumstances that they would not have entered into it if the developments had been foreseen at the time of contract.

The parties of a commercial contract are free to negotiate agree upon customized provisions of a contract. To manage the risk of sudden import tariffs and similar trade barriers, following regulations may be considered:

• An extended definition of force majeure, hereunder wording regarding import tariffs and similar trade barriers in the definition of force majeure. E.g. we have seen an increase of including pandemics as an example of a force majeure event in commercial contracts in the aftermaths of Covid-19.
• Provision regarding regulatory conditions addressing changes in public taxes, duties, and similar obligations. Such changes may trigger claims for price adjustments or provide a reciprocal right to cancel the contract in case of changes of major concern.
• General price adjustment clause including the right to adjust prices/price mechanisms due to cost increases, alternatively with a specific threshold for when such adjustment may be invoked (e.g. 50/50 split of all price increases above X%).
• More flexible and reciprocal cancellation or termination provisions, particularly in the case of long-term contracts.
• Another technique is the use of hardship clauses, which aim to impose a renegotiation obligation to restore the balance in the contractual relationship if disrupted by unforeseen circumstances. In commercial contracts, hardship typically refers to changes in economic, financial, legal, or technical factors that disrupt the equilibrium of the contract. The distinctive feature of hardship clauses is their focus on the legal effect, where the consequences of unexpected circumstances are not predetermined by the contract but should primarily be addressed through renegotiations, with alternative subsidiary dispute resolution mechanisms if necessary. To maintain the effectiveness of a hardship clause, it is advisable to include an agreed-upon dispute resolution mechanism involving a third party or expert if an agreement cannot be reached.