Summary
- Meaning of force majeure clause: contractual clauses that suspend or terminate performance obligations when an external event makes performance impossible or significantly delayed, bridging the gap left by the narrow common law doctrine of frustration.
- Being specific is key: because force majeure is a contractual right, defining what constitutes force majeure (a force majeure event) is extremely important. Vague catch-all wording risks unenforceability, and economic or market changes will never qualify unless the contract specifically provides for this.
- Force majeure examples: Typical events include natural disasters, pandemics, war, government action, and utility failures.
- Relying on the clause: the partying seeking to rely on the clause must prove: (i) the event qualifies; (ii) it as the sole cause of non-performance; and (iii) all reasonable steps to mitigate were taken to mitigate its effects. The wording of the clause can affect how difficult it would be evidence this.
- Statutory limits: In B2B contracts, force majeure clauses may be open to challenge under the Unfair Contract Terms Act 1977. In consumer contracts, the Consumer Rights Act 2015 makes it very difficult to exclude liability for delayed delivery.
Introduction
Commercial contracts typically contain “force majeure” clauses. This type of clause is intended to deal with unforeseen and uncontrollable circumstances that affect the ability of a party to perform the contract by absolving that party of the obligation to keep performing.
In an increasingly unstable world where climate and political risks are prevalent, force majeure clauses can be an important tool to limit liability.
In this blog, we will explain what a force majeure clause is, what contracting parties should know about them, how they can rely on them, and how to react when the other party seeks to rely on them.
Purpose of Force Majeure Clauses
Sometimes while parties are carrying out their obligations under a contract, external events can cause the fulfilment of these obligations to become impossible, regardless of any action that a party could take.
A good example is a shipping contract. If there is a freak storm (the “force majeure event”) that sinks the ship, then the charter will be unable to deliver.
The courts in England and Wales do not recognise a doctrine of force majeure. Instead, supervening events are addressed by the doctrine of “frustration.” A contract will be frustrated if an event occurs which:
- Is not the fault of either party;
- Makes performance impossible, illegal or radically different from what was originally contemplated; and
- Was not provided for in the contract.
This is a difficult standard to establish, and would not cater for less serious events that still have a major impact on the commerciality of the contract.
What is more, the doctrine of frustration usually operates to end the contract automatically rather than providing for a period under which a party’s obligation is suspended until it can recover. Relying on the doctrine of frustration, therefore, can be risky.
A force majeure clause is meant to bridge the gap by contractually providing for a suspension and/or termination right in the case of supervening events that prevent or delay performance.
Defining Force Majeure Events
Because force majeure is a creation of the specific contract, defining what is meant by a “force majeure event” is key. Too specific and it may not cater for the scenario that actually arises. Too broad and it may be unenforceable.
Typical examples of a force majeure event include:
- acts of God, flood, drought, earthquake, or other natural disaster;
- epidemic or pandemic;
- terrorist attack, civil war, civil commotion or riots, war, threat of or preparation for war, armed conflict, imposition of sanctions, embargo, or breaking off of diplomatic relations;
- nuclear, chemical or biological contamination or sonic boom;
- any law or action taken by a government or public authority, including imposing an export or import restriction, quota or prohibition, or failing to grant a necessary licence or consent;
- collapse of buildings, fire, explosion or accident;
- any labour or trade dispute, strikes, industrial action or lockouts;
- non-performance by suppliers or subcontractors engaged by the other party; and
- interruption or failure of a utility service.
It is best to be as specific as possible in these clauses. Catch-all phrases such as ‘events which the parties designate’ will be subject to the contractual duty to act rationally and fairly, and as such are not guaranteed to provide full immunity from liability in the designated circumstance.
Where the contract is vague or merely specifies “force majeure event”, relevant case law is of little assistance.
The general idea at common law is that force majeure events are acts, events, or circumstances which prohibit or materially affect the obligation of and performance under a contract and which are beyond the reasonable control of the party/parties concerned.
What is clear, however, is that a change in economic or market circumstances, in turn affecting the performance of obligations under the contract, is not a force majeure event. In the case of Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm), a force majeure clause that read: ‘if either party is by reason of force majeure rendered unable wholly or in part to carry out any of its obligations under this agreement’ did not permit a contracting party to stop performing its obligations even though the price of gas made performance unprofitable.
Relying on Force Majeure Clauses
The burden of proof is on the party seeking to rely on the clause – that is, they must prove both that the event can be classed as a force majeure event, and that non-performance of their contractual obligations was triggered by the event.
To rely on the clause, there are several factors you need to consider:
The words in the force majeure clause themselves:
The words used in the clause are incredibly important – the courts will only interpret the force majeure clause by reference to the words used, and not any general intention. Therefore, how much evidence is required to demonstrate force majeure can vary greatly depending on how the clause is worded.
An example of this can be found the case of Tennants (Lancashire) Ltd v G.S. Wilson & Co. Ltd [1917] AC 495:
- If a force majeure clause provides that the relevant triggering event must “prevent” performance, the relevant party must demonstrate that performance is legally or physically impossible, not just difficult or unprofitable.
- By contrast, the words “hinder” and “delay” have a wider scope and will generally be satisfied if performance is substantially more onerous.
- The court summarised by stating that whereas prevention meant rendering delivery impossible, hindering ‘means something less than this, namely, rendering delivery more or less difficult, but not impossible’.
Sole cause and mitigation:
Furthermore, a force majeure event must be the sole cause of the non-performance of the contractual obligation. If there is some other event or cause that contributes to the non-performance, then the clause cannot be relied on.
Linked to this, the party seeking to rely on the clause is likely to have a contractual duty to mitigate the effect of the force majeure event. If no attempt to mitigate has been made, they will be unable to rely on the force majeure clause. In RTI Ltd v MUR Shipping BV [2024] UKSC 18 (15 May 2024), it was confirmed that a force majeure clause will generally be as applicable only if the party invoking it can show that the event causing the non-performance was beyond its reasonable control and could not be avoided by the taking of reasonable steps in line with the contract.
Statutory control:
There is also important statutory control in relation to the deployment of force majeure clauses. In B2B contracts, section 3 (2) of the Unfair Contract Terms Act 1977 states that clauses which seek to limit liability, including force majeure clauses, need to satisfy the reasonableness test (read more about this here) set out in the Act.
In any contracts with individual consumers, the provisions of the Consumer Rights Act 2015 will apply, and prevent the trader from excluding or limiting liability for a delay in delivering goods or services. Therefore, it is very important to note that it will be difficult to rely on a force majeure clause in such instances.
Notice of Force Majeure Event
If you are seeking to rely on a force majeure clause, it is common that they also include a condition that the party seeking to rely on the clause must give notice of the force majeure event to the other party. It is important that these conditions express clearly the permitted manner(s) and timing of the notice, and also that the notice is mandatory for the reliance on the clause to be effective – if it is not sufficiently clear, it may not be binding.
If the other party gives you notice of a force majeure event, it is imperative that you examine their reasoning and formulate a response as quickly as possible. It is normal to send a holding response reserving your rights and send a more substantive response at a later stage.
During your examination and investigation of the other party’s notice to rely on a force majeure event to relieve them of their contractual obligations, you should consider:
- The existence of the force majeure clause itself;
- The force majeure event being relied upon;
- The consequences of the force majeure event being asserted;
- Whether the affected party has provided any proof of the force majeure event and its effect on the fulfilment their contractual obligations;
- Whether the force majeure event is the sole cause of the non-performance;
- Whether the affected party has followed the proper process for invoking the force majeure clause; and
- Whether any other clause in the contract will affect the process or result of invoking the force majeure clause.
Conclusion
Force majeure clauses are useful to prevent losses as a result of an event genuinely out of a party’s control. However, relying on them successful can be tricky.
EM Law are experts in contract and commercial law. If you need help navigating force majeure clauses or any other aspect of your contracts, please contact us here or visit our Contract Lawyers page for more information.
