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06 January 2016
In contract law, force majeure refers to exceptional events which prevent or hinder the performance of an obligation. Generally, these are events beyond the parties' control, which could not have been foreseen at the time the contract was entered into or prevented by the affected party. Common examples include natural disasters, severe weather, government actions, war, terrorism, riots and strikes. The language of force majeure clauses varies greatly, with some requiring the performance of the contract to have been prevented by the event, while others use the lower threshold of the performance being hindered or delayed. Minimum timing thresholds before an event can be considered as force majeure are also common.
There is great variety when it comes to the legal content and effect of force majeure clauses. An event of force majeure will often result in the affected party being excused from liability for delay or non-performance of its obligations (such as liquidated damages) while the event is ongoing, with a corresponding extension of time for performance. The contract remains in force. Usually one or both parties may terminate the contract without penalty if the force majeure event continues for a certain amount of time (usually three to six months). Failure to comply with contractual notice provisions can have serious consequences. Generally, each party bears its own costs arising from the force majeure event and claims under its own insurance for compensation. Contractual protection continues only so long as the force majeure event itself does. Therefore, contractors must recommence performance as soon as it becomes possible to do so or risk penalties for breach of contract.
Unlike many civil law countries, there is no implied application of the doctrine of force majeure under English law. Rather, the treatment of an event of force majeure comes from the contract. It is usual for English courts to apply contracts strictly, according to their wording and respecting the parties' freedom to contract on terms they see fit. The parties may choose a broad or narrow definition of force majeure, depending on their needs. Accordingly, careful and comprehensive contract drafting is particularly important.
Generally speaking, the courts will seek to enforce the performance of a contract. Thus, the fact that a contract has become uneconomic or commercially impractical will likely not be considered a force majeure event unless expressly provided for. The issue becomes one of proof – that is, whether the party relying on the force majeure clause can show that the event on which it relies is included in the clause. In this respect, because the clause is seen as a commercial solution rather than a legal one, it will be read in a natural way and not subject to the limitations that are used to reduce the scope of an exclusion clause.
In some (strictly limited) circumstances, the English law doctrine of frustration may provide relief where the force majeure clause does not. In brief, this doctrine provides that if an event makes performance of a contract impossible, illegal or pointless, the contract is 'frustrated' and can be set aside. However, the criteria for this are difficult to meet and the consequence of bringing the contract to an end may not be desirable.
An unconsidered use of boilerplate clauses can lead to unintended consequences. The broader or narrower treatment of force majeure may be appropriate, depending on the nature of the contract and the obligations on either party to it. Special consideration should be given to force majeure and its intended treatment during pre-contractual negotiations, even where standard form contracts include a boilerplate force majeure term (which are by their nature general terms and possibly not sharply focused on the project under consideration).
Finally, where contingency or disaster-recovery plans can succeed in allowing the contract to be performed despite the event of force majeure which would ordinarily provide contractual relief, this can be instrumental in cementing commercial relationships and distinguishing a supplier from its competitors.
For further information on this topic please contact Ola Ø Nisja, Rob Jardine-Brown or Rita Allan at Wikborg Rein by telephone (+44 20 7367 0300) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
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