The Supreme Court of Libya (المحكمة العليا), the country's highest court in civil and commercial matters, delivered a defining judgment on force majeure and the doctrine of exceptional circumstances (نظرية الظروف الطارئة) in construction contracts. The dispute concerned a Libyan contractor that suspended works on a state infrastructure project for fourteen months owing to armed conflict and the collapse of security along its supply routes, and the employer's subsequent claim for liquidated damages and termination for delay. The Court held that (i) armed conflict that renders performance of the works impossible constitutes force majeure within the meaning of the Libyan Civil Code, so that the contractor was not in culpable delay; (ii) force majeure — which suspends or extinguishes the obligation — must be distinguished from the doctrine of exceptional circumstances, which applies where performance remains possible but has become excessively onerous owing to unforeseeable general events, and which empowers the judge to rebalance the contract; (iii) the contractor was entitled to an extension of time and to release from liquidated damages for the period of the conflict, and the employer could not rely on the suspension as grounds for termination; and (iv) for the post-conflict period, in which works resumed amid a sharp escalation in material and labour costs, the doctrine of exceptional circumstances justified an equitable rebalancing of the contract's price terms. The decision is a leading authority on the allocation of conflict-related risk in Libyan construction projects and aligns Libyan law with the Egyptian and other Arab civil-law traditions on which the Libyan Civil Code is based.
Libya's Civil Code (Law No. 4 of 1954), closely modelled on the Egyptian Civil Code, governs the obligations of parties to construction contracts and embodies two related but distinct doctrines: force majeure (القوة القاهرة), under which an obligation is extinguished or suspended where performance becomes impossible owing to a foreign cause beyond the debtor's control, and the doctrine of exceptional circumstances, under which a judge may reduce an obligation that has become excessively onerous following unforeseeable general events. In 2019, the respondent, a Benghazi-based construction company, entered into a contract with the claimant, a state-owned infrastructure authority, for the construction of a major highway and associated utility works in the eastern region. The contract contained a liquidated-damages clause for delay and a provision permitting the employer to terminate for prolonged culpable delay. Works proceeded on programme until the region was engulfed by renewed armed conflict: supply routes were severed, fuel and construction materials became unavailable, the site was rendered inaccessible, and the contractor's staff were evacuated for their safety. The contractor declared force majeure and suspended works, which remained suspended for some fourteen months. When works eventually resumed, the employer demanded liquidated damages for the entirety of the suspension period and subsequently purported to terminate the contract for delay, while the contractor claimed an extension of time, release from delay penalties, reimbursement of the costs of securing, demobilising and remobilising the site, and a rebalancing of the contract price to reflect the sharp escalation in material and labour costs that had occurred during the conflict. The court of first instance largely accepted the contractor's case; the Court of Appeal reversed in part, holding that the contractor could have mitigated by sourcing materials through alternative routes and that the price-escalation claim was not justiciable. The contractor appealed to the Supreme Court on the proper construction of force majeure and the doctrine of exceptional circumstances under the Civil Code.
The Supreme Court framed three questions for determination: (1) Whether the armed conflict and its consequences — the severance of supply routes, the unavailability of materials, and the inaccessibility of the site — constituted force majeure under the Libyan Civil Code, and whether the contractor was required to establish absolute and permanent impossibility of performance; (2) The proper relationship between force majeure and the doctrine of exceptional circumstances, and which doctrine governed the contractor's claims for relief from delay and for a rebalancing of the contract price; and (3) Whether the employer was entitled to levy liquidated damages and to terminate the contract for the delay, and the extent of the contractor's right to recover the costs incurred in securing, demobilising and remobilising the site.
The Supreme Court allowed the contractor's appeal in part, restored the first-instance award in substantial measure, and issued the following holdings:
(1) Armed conflict that renders performance impossible is force majeure. The Court held that the armed conflict, the severance of supply routes, the unavailability of materials, and the inaccessibility of the site were "foreign causes" beyond the contractor's control which rendered performance of the works impossible for the duration of the conflict, and that force majeure was therefore established. The Court rejected the Court of Appeal's reasoning that the contractor could have mitigated by sourcing materials through alternative routes, holding that the contractor is not required to establish absolute and permanent impossibility, nor to hazard the lives of its personnel or incur extraordinary and disproportionate expenditure, in order to invoke force majeure; it suffices that performance was impossible for the relevant period in the circumstances as they actually stood.
(2) Force majeure and exceptional circumstances are distinct doctrines with distinct remedies. The Court drew a careful distinction between the two doctrines: force majeure operates where performance is wholly impossible and results in the suspension or extinction of the obligation and the release of the debtor from liability for non-performance; the doctrine of exceptional circumstances, by contrast, operates where performance remains possible but has become excessively onerous owing to unforeseeable general events of an exceptional character, and it empowers the judge — not to discharge the obligation — but to reduce it to a reasonable level so as to restore the contractual equilibrium. The Court held that the armed conflict gave rise to force majeure for the period of active hostilities and inaccessibility, and to exceptional circumstances for the subsequent period in which works resumed amid a sharp and unforeseeable escalation in material and labour costs.
(3) The contractor was entitled to an extension of time and to release from liquidated damages. The Court held that, force majeure having been established, the contractor was not in culpable delay during the suspension period and was entitled to a commensurate extension of time and to release from liquidated damages for that period. The employer's purported termination for delay was accordingly unjustified, and the contractor was entitled to recover the reasonable costs of securing, demobilising and remobilising the site and its plant.
(4) The doctrine of exceptional circumstances justified a rebalancing of the contract. The Court held that the post-conflict escalation in material and labour costs was a general, exceptional and unforeseeable event within the meaning of the doctrine of exceptional circumstances, and that it fell to the judge to reduce the employer's obligation to the extent necessary to restore the contractual equilibrium — in this case, by adjusting the contract price to account for the escalated costs, without discharging either party from the contract.
This judgment is a leading statement of Libyan construction law and of the interaction between force majeure and the doctrine of exceptional circumstances, with far-reaching consequences for contractors and employers operating in conflict-affected markets. Since 2011, a substantial share of Libya's public and private construction projects have been interrupted or abandoned owing to armed conflict, and the legal treatment of those interruptions has been the subject of sustained uncertainty. By holding that armed conflict rendering works impossible is force majeure, and that a contractor need not prove absolute impossibility or hazard its personnel to invoke it, the Supreme Court has brought welcome clarity to the allocation of conflict-related risk and has made it significantly harder for employers to convert force-majeure suspensions into grounds for liquidated damages or termination. At the same time, the Court's careful demarcation of force majeure from the doctrine of exceptional circumstances — and its confirmation that the latter permits a judicial rebalancing of the contract where performance remains possible but excessively onerous — arms courts with a flexible, equitable tool for dealing with the post-conflict cost environment without annihilating the bargain. The decision also has regional resonance: Libya's Civil Code belongs to the Egyptian civil-law family that underpins the codes of much of the Arab world, and the Court's reasoning on both doctrines is likely to be cited in construction and infrastructure disputes elsewhere in the region where parties seek relief from the consequences of conflict, sanctions, or sudden economic dislocation. Practitioners note that the practical lesson for parties to Libyan construction contracts is to draft force-majeure and hardship clauses with precision, to document the causes of any suspension contemporaneously, and to preserve evidence of escalated costs, since the availability of both force-majeure relief and equitable rebalancing will frequently turn on the quality of the factual record.
"Force majeure and exceptional circumstances are two distinct doctrines, each with its own domain and its own remedy. Where a foreign cause beyond the debtor's control renders performance impossible, the obligation is suspended or extinguished and the debtor is not in delay; where performance remains possible but has become excessively onerous by reason of general events that could not be foreseen, the obligation is not discharged but the judge may reduce it to a reasonable level so as to restore the equilibrium of the contract. A debtor is not required to prove impossibility that is absolute and permanent, nor to hazard the safety of its personnel, in order to invoke force majeure. It is enough that performance was impossible for the period in question in the circumstances as they stood." — Justice of the Supreme Court of Libya