1. Overall
Chapter IX of the Standard Contracts has “Amendments, etc.” as headline.
Although both standard contracts have a main provision with the heading “Changes in delivery” isn't this the title of this article.
The two provisions in question are paragraph 34 of NS 8411 and paragraph 37 of NS 8412, respectively.
NS 8412 Paragraph 37 contains many sub-provisions dealing with how the parties should act if changes are to be made to what has been ordered. These rules are quite similar to the amending provisions of the Contract Law Standards and, accordingly, detailed and comprehensive.
NS 8411 paragraph 34 has a completely different, and substantially shorter content. This provision states that the buyer does not have the right to demand changes, unless otherwise agreed. The only exception is in the event that there should be changes in law or regulations with consequence for the agreed delivery. In this case, the buyer has the right to demand adjustments. However, we have written about this in the article “Other requirements for the subject matter of the contract” and that article you can find here.
Since there is so much difference between the two standards in terms of the right to impose amendments, it is natural to treat the amendment rules in the collection of articles for the special provisions of NS 8412. The article in question can be found here.
2. Rule mirror
3. About Cancellation
3.1 Overall
In the regulatory mirror, we have set NS 8411 paragraph 35.1 on cancellation before delivery up against NS 8412 item 39. The heading of the latter provision is only “Cancellation” without specifying whether it applies to cancellation before or after delivery.
The reason for this is that, as a rule, the buyer does not have the right to cancel the order after delivery in manufacturing purchases (NS 8412).
Therefore, in the following, the rules on cancellation in NS 8412 paragraph 39 are treated together with the rules on cancellation before delivery in NS 8411 paragraph 35.1.
3.2 Cancellation before delivery
NS 8411 paragraph 35.1, first paragraph establishes that the buyer has the right to cancel before delivery, and the cancellation may apply in whole or only in parts.
When the buyer cancels, it follows from the last paragraph of the provision that the seller is entitled to compensation for his financial loss, while the buyer does not have to pay the agreed remuneration. The provision is silent on how the financial loss is to be calculated, but refers instead to Chapter X of the Purchase Act “Scope of compensation” as you find here.
We return to Chapter X of the Purchase Act after we have accounted for NS 8412 paragraph 39 which also refers to this chapter of the Purchase Act.
NS 8412 paragraph 39 has the same starting point as NS 8411 paragraph 35.1 and the first paragraph of the provisions are substantially identical. The prerequisite for the buyer to be able to cancel is that the products have not been delivered. As long as this condition is met, the buyer can cancel for everything, or only for parts of what has been ordered.
In the event of cancellation, the buyer's obligation to pay consideration lapses, but as mentioned above, the seller is entitled to reimbursement of his financial loss in accordance with the rules of Chapter X of the Purchase Act.
Contrary to what is the situation with the purchase of construction products that the seller can normally sell to others, products to be manufactured cannot be expected to be sold to others and in any case not at the price agreed upon.
This has the consequence, among other things, that the seller is obliged, as a starting point, to cease production of the product in question “as soon as” the buyer cancels the order, cf. NS 8412 paragraph 39, first sentence, last sentence.
In the third paragraph, however, a provision is inserted which modifies the seller's obligation to stop the processing. It follows from this that the seller can resume and complete the operation if the buyer does not prove that he can (will) pay the compensation to which the seller is entitled as a result of the cancellation.
In other words, it means that the seller can set aside the buyer's cancellation and maintain the purchase (and manufacture).
In our view, this is probably an option that will rarely be used. And should it be used, it is reasonable to assume that the vast majority of the work effort and cost deductions had been completed when the cancellation was received. Presumably, the product will probably also be of such a nature that, with a certain degree of probability, it is considered possible to sell it to a third party.
With that said, the third paragraph does not establish such conditions for the seller's retention of the purchase, and further completion. However, it follows from the provision that the seller can provoke a clarification when the product is ready for delivery. If the buyer does not accept the product in return for payment of the agreed consideration, the seller may terminate the contract, tentatively conduct a cover sale and in any case claim reimbursed his loss. In the event of the termination of a contract, Section 29 of the Purchase Act will apply, and that provision exists here.
Finally, it is mentioned that the buyer may also cancel the assembly that has not been carried out, cf. NS 8412 paragraph 39, first paragraph. When this happens, of course, the seller must stop any preparations for assembly, and then he will be entitled to compensation under Chapter X of the Purchase Act.
3.3 Purchase Act Chapter X “The extent of the compensation. Rate”
The chapter contains four provisions governing the scope of compensation (§§ 67 — 70) and one provision concerning interest (§ 71).
It falls too far to give an in-depth account of these provisions.
The most central provision is Section 67 of the Purchase Act which sets out the most basic principles of what the seller can claim replaced. Next comes Section 70, which states that the seller has an independent duty to limit the loss, which is the result of the fundamental principle of loyalty in contractual relations.
Sections 68 and 69 of the Purchase Act apply specifically to the situation where the contract is terminated and the seller then makes an attempt at a cover sale. In that case, Section 68 of the Purchase Act governs the situation when the contract object (s) is sold, while Section 69 of the Purchase Act regulates the situation when there is no cover sale. In the latter case, the law adds up to a form of abstract consideration of what a coverage sale would have brought in. We do not go into this further, but mention that these provisions will be applicable in the situation we described in connection with NS 8412 paragraph 39, the last paragraph of which the seller has the right to continue manufacturing despite the buyer's cancellation, see the last part of paragraph 3.2 above.
With regard to the general provision on liability, it follows from Section 67, first paragraph of the Purchase Act that the seller may claim compensation for his (foreseeable) loss, including expenses, price difference and lost profits.
In the case of indirect losses, cf. section 67, second paragraph of the Purchase Act, we believe that it is a condition that the buyer has acted negligently. This is not expressly stated in the provision, but follows from the fact that the rules on the buyer's liability to the seller in the event of cancellation are regulated in section 57 of the Purchase Act. This provision refers to section 27 of the Purchase Act, and in sections 27 (4) and (5) of the Purchase Act it is stated that indirect loss presupposes fault or negligence on the part of the person responsible (here; buyer).
4th. On the deterioration of the contractual balance (hardship)
4.1 Force majeur events
The hardship provisions apply when the contractual relationship is affected by a force majeure event, see first paragraph of NS 8411 paragraph 36.1 and NS 8412 paragraph 41.1
Force majeur events are defined in the first paragraph of the provisions as “circumstances beyond the control of the parties which the person concerned could not reasonably be expected to have taken into account or to avoid or overcome the consequences of”.
In other words, there are many conditions that must be met before the rules on hardship can be applied at all.
A clear and well-known example of a force majeur event in recent times was the covid crisis in the winter of 2020. No one could have taken this one into account, avoided or in any way overcome its consequences. The fact that covid as such was beyond the control of the parties was also clear. Incidentally, this was based on the judgment of the Borgarting Court of Appeal of 25.10.2022 (LB-2022-039472) and the question was also not disputed between the parties.
As one learned to deal with covid and the restrictions of the authorities gradually loosened and eventually ceased, one fell back to normal.
However, for agreements concluded after the COVID outbreak, people have learned to deal with such situations, and it is therefore not without reason that one will characterize a new round of covid as a force majeur situation. This must be taken into account when considering the consequences for society, etc.
Beyond the aforementioned judgment of 25.10.2022, it is not easy to find case law that can shed light on what is required for a force majeur event to be considered to exist.
On the other hand, there are several judgments in which one of the parties has claimed that failure to fulfill contractual obligations can be reverted to matters beyond the control of the party.
This was the situation in a Supreme Court judgment of 24.1.2022 and where the Supreme Court has an in-depth discussion of the control responsibilities in Section 27 of the Purchase Act and Section 33, second paragraph, of the Consumer Purchase Act, cf. Section 24, second paragraph.
The case concerned a tree fall over a power line caused power surges in the distribution network and extensive damage to the electrical facilities and appliances of a number of electricity subscribers.
The insurers that had covered the damages demanded recourse with the online company.
The Supreme Court, like the previous instances, concluded that the network company was liable for the damages, since the conditions for exemption from liability under the control liability rule of Section 33, second paragraph of the Consumer Purchase Act, cf. section 24, were not met.
The fall was a cause of damage that was objectively within the scope of the network company's control, and the network company had not demonstrated that the fall was beyond its control.
The reasons for the surge were also plausible, so the online company could reasonably be expected to take them into account at the time of the appointment. Consequently, the consideration was also precluded from exemption from liability.
In another judgment of the Borgarting Court of Appeal of 19.5.2020 (LB-2018-186058), the dispute concerned, inter alia, daymulch claims from home buyers as a result of delayed handover. Seller claimed that the delays were due to circumstances beyond Seller's control. The explanation given was that the seller had had difficulties in supplying electricity to the property being built. This had taken longer than expected, and it was stated, among other things, that the neighboring properties opposed cable ditching to the seller's property. The Court of Appeal concluded that these were matters within the seller's “sphere of control” and the delays were thus the seller's risk.
If a party receives challenges as a result of the bankruptcy of a subcontractor, it is also not considered to be a relationship outside the party's sphere of control.
It takes a great deal with others to be able to accept a claim that there is a force majeure event, or a relationship outside the party's sphere of control.
In the second paragraph of NS 8411 paragraph 36.1 and NS 8412 paragraph 41.1, it is stated that the seller may also invoke hardship “if the cost of fulfilling the agreement is fundamentally increased as a result of force majeur events”.
For this, we must first of all point out that a fundamental increase in costs is not sufficient. The price of steel and other metals, for example, is not determined by supply and demand in Norway alone — on the contrary. These types of construction products or input factors in a manufacturing purchase are price sensitive and depend entirely on price developments in Europe and/or the world market. An increase in prices as such will therefore not trigger hardship. A fundamental increase is required, and it is not easy to say much about what this actually entails.
In any case, our conclusion is that it takes a great deal of time before one of the parties to a contract governed by NS 8411 or NS 8412 can trigger the hardship provisions.
4.2 Hardship negotiations
In NS 8411 paragraph 36.2 and NS 8412 paragraph 41.2 there are provisions on how the parties will conduct hardship negotiations.
It follows from the second paragraph of the provisions that the aim of the parties in these negotiations must be to reach an “reasonable burden sharing (...) arising from the hardship situation”.
Furthermore, it follows from the third paragraph that it is the party requiring such proceedings that has the burden of proving that the conditions for hardship have been met. In this regard, we refer to what we have written in point 4.1.
Beyond this, we refer to the provision, arguing that the rules will be less applied in practice and then the parties will in any case be the representatives of lawyers.
4.3 Failed Negotiations — Claim for Litigation or Arbitration
If the parties do not succeed in negotiations, the parties are of course free to bring the matter before the ordinary courts, or to initiate arbitration where this has been specifically agreed.
