Force Majeure
Often misunderstood and neglected, force majeure clauses have recently received much prominence due to the pandemic and armed conflict. And almost equally as often such clauses failed to meet parties’ expectations. Our view: a force majeure clause is almost always worth the attention
It might be assumed that force majeure is a generic concept recognised by all states. But this is not so.
Whilst continental laws are typically codified and include a statutory definition of force majeure, common law, including English law, do not organically provide for the concept of force majeure.
The above might be a surprising observation, as English law is widely used in international transactions. English law organically includes a concept somewhat similar to force majeure: frustration. Frustration is defined as “circumstances [that] make [an obligation] radically different from what was undertaken by the contract” and if frustration is established, it brings a contract to an end. Generally speaking, frustration is not lightly invoked. There is also some authority to say that where a force majeure claim would have failed, a frustration claim will fail, too.
Since force majeure is not organically provided for by English law, the parties can, and often will, spell out in their contracts what force majeure is. It is of utmost importance to recognise that both the scope of force majeure and its consequences are entirely up to the parties: force majeure is what the contract says it is. If there is no force majeure clause is in the contract, neither party will be able to declare force majeure.
English law treats force majeure clauses as exclusions of liability. Because such exclusions are not lightly tolerated by English law, the relevant language will be interpreted by courts against the party seeking to rely on it (ie, the courts use contra proferentem principles). It follows that English courts will not imply events not specifically listed as force majeure.
In practice, the drafting of force majeure clauses differs significantly from contract to contract. The drafting will have a profound effect. For example, the clause may require that the performance of an obligation is prevented by force majeure; or it may require that the performance of an obligation is hindered by force majeure.
A starting point to draft a comprehensive force majeure clause may be the ICC Force Majeure clause 2020. There are some well-known GTCs in the trade industry also may serve as models for force majeure provisions.
Force majeure is one of the first items to consider where an obligation is not performed. It should come as no surprise that force majeure is frequently litigated and some generic observations may be made about the courts’ approach as follows.
Generally speaking: (i) frustration of sole source of supply of goods is not frustration but some exceptions to the principle are possible; and (ii) closing of usual shipping routes is not very likely to constitute force majeure.
The commercial context might be relevant to the scope of force majeure. For example, generally speaking, c.i.f. vendors can either ship or buy afloat. However, if the contract implies only one option and that specific option is affected, the vendor might be entitled to claim force majeure.
If a force majeure clause is triggered, there is a menu of consequences: is it extension of time to perform? or cancellation? are both parties or only the affected party entitled to cancel?
Force majeure clauses will often include procedures. Some have a strict requirement to give notice or to provide a certain type of supporting certificate. The meaning of the relevant provisos can differ and should be reviewed – for example, it might mean “no timely notice or certificate equals no force majeure”.
Finally, it is often assumed that force majeure does not cover payments. It is certainly the prevalent commercial practice, but whether a contract follows that practice will depend entirely on the drafting.
