May the force majeure event be with you?

Joseph Worndl

In 2 Entertain v Sony, the High Court held that liability for losses stemming from a warehouse fire during the 2011 London Riots could not be excluded by a force majeure clause.

Sony provided warehousing and distribution services to 2 Entertain, a BBC subsidiary selling DVDs. In 2011, during, the London riots, a gang set fire to the warehouse that held 2 Entertain’s stock.

Sony’s contract with 2 Entertain contained a force majeure provision covering “circumstances beyond the reasonable control of the party affected including…riot [and] civil commotion…” However, the court found, based upon past break-in incidents at the warehouse and industry-standard fire safety guidelines, that the risks of unauthorised entry and arson were reasonably foreseeable. The broader context of civil unrest would not be sufficient to engage the force majeure provision when the underlying cause of loss was within Sony’s reasonable control.

The judgment also analyses another clause excluding liability for “any indirect or consequential loss.” Sony pointed to this clause to exclude liability for loss of profit, submitting that such losses were a consequence of the loss of goods. The court accepted Sony’s submission that “indirect or consequential loss” could have a meaning in the contract that runs counter to the common law interpretation of this phrase. In the case law surveyed, the term is typically interpreted by the courts to mean losses that do not arise directly and naturally from the breach of contract (aka the second limb in Hadley v Baxendale), and loss of profit often falls outside this interpretation. In this instance, Sony was unsuccessful in establishing that the contract provided an alternate meaning for the phrase in question.

In the current environment, this case is a useful reminder of the court’s approach to interpreting force majeure and exemption clauses. Businesses seeking to rely on force majeure will likely need to demonstrate that the purported force majeure event is the cause, and not merely the context, of the claimant’s losses. In addition, and perhaps more significantly, by following the Transocean case the court has shown than it is possible for “indirect or consequential loss” to mean something other than the second limb in Hadley v Baxendale.