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Troubled times: force majeure

Jason Rix

Why do we need force majeure clauses? The answer is that the common law doctrine of frustration is narrow and the consequences are blunt: the contract is “killed” with no power of suspension. The Law Reform (Frustrated Contracts) Act 1943 allows statutory adjustment but it is short, complex and difficult to navigate. Freedom of contract lets the parties specify how force majeure events should be handled.

A well drafted clause, it is said, should contain a definition of the event, the obligations as to reporting, the effect of the event and the mechanics for dispute resolution. But there are traps for the unwary both in drafting and in relying on a force majeure clause:

  1. The clause may be seen as an exemption clause. The dividing line between “I promise to perform but will not be liable if I fail to do so for specified reasons” (an exemption clause) and “I promise to perform unless prevented by specified reasons” (a force majeure clause) is difficult to draw. If it is an exemption clause it may be interpreted against the person relying on it and it may be subject to the Unfair Contract Terms Act 1977.
  2. Unless you draft clearly otherwise, the clause will normally be interpreted as applying only where the event is beyond the reasonable control of the party in question. B&S Contracts v Victor Green [1984] shows the difficulty of relying on a strike by one’s own work force.  Okta Crude Oil is an example of the party instigating requests by a government to prevent performance.
  3. The clause will not normally apply to an event caused by the negligence of the party relying on it.
  4. Where the clause talks about an event preventing performance this will normally be physical or legal impossibility rather than one making the contract uneconomic. Thames Valley Power v Total Gas & Power is an example. If you want to be able to terminate a contract because it has become uneconomic to perform, you need to include clear wording.
  5. It is a question of interpretation whether failure to comply with notice provisions will prevent reliance on a force majeure clause. This will turn on whether giving notice is a condition precedent which must be fulfilled or an intermediate term. Clearly defined time limits may suggest that giving notice is a condition.
  6. The clause will normally apply only if the event causes the failure to perform and the burden of demonstrating this will be on the person seeking to rely on the clause. Agrokor v Tradigrain [2000] is an example.
Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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