Contract Law - Force Majeure
FORCE MAJEURE
Under English law, if a contract becomes impossible to perform, or is only able to be performed in a manner substantially different from that envisaged by the Parties at the outset, then the doctrine of "frustration" may apply and the contract terminate. This may not be in the interests of either of the Parties who may wish the contract to be suspended rather than terminated, for the duration of the frustrating event, or for a specific period.
In certain continental jurisdictions, where delay in or failure to perform a contract by a Party for reasons beyond its control occurs, then the doctrine of "force majeure" may apply. This generally results in suspension of contractual obligations.
The Parties may wish to agree during the contract negotiation the position under the contract in such circumstances. Here it's important to ensure that the position only applies if performance is delayed or prevented due to circumstances beyond the reasonable control of the party seeking relief.
When agreeing "force majeure" provisions the Parties should agree the consequences of the force majeure circumstance - for example:
- the extent of the liability of the Party claiming force majeure;
- whether the contract is to be terminated and, if so, the impact on the respective rights and obligations of the Parties;
- whether there's to be an extension of the time for performance of the contract obligations as originally envisaged, or whether they are to be varied;
- whether in the event of an extension of the time for performance of the original obligations, the extension is to be open ended, or subject to a specific period before those obligations are waived, or the contract comes to an end;
- whether any sums under the contract should be paid immediately, or whether sums paid prior to the force majeure event should be repaid.
In considering force majeure provisions the Parties may wish to be more specific than simply referring to "circumstances beyond the control" of a Party to avoid debate regarding what circumstances are in fact beyond the control of the party claiming relief; the usual matters which the Parties might define as being events of force majeure are:
- Act of God including tempest, fire, or natural disaster;
- War, civil war, sabotage or act of terrorism;
- Government sanction, embargo, import or export regulation or order;
- Labour disputes, including strikes, lockouts, boycotts or other industrial action (but usually strikes of the labour force of the party claiming force majeure are expressly excluded);
- Failure in the transportation of equipment, machinery or personnel or in the provision of any utility including power, gas, water, or communication services;
In order to avoid failure to specify a particular event of force majeure, it's usual to include the general sweep-up proviso "or any event or circumstance beyond the reasonable control of a Party".
The following general precedent clauses may form the basis for discussion between the parties as regards the inclusion of force majeure provisions in any agreement between them.
a)"No liability shall attach to a party which is unable to perform its obligations under this Agreement (Contract) due to events or circumstances beyond its reasonable control. The Party affected by such events or circumstances shall advise the other as soon as practicable of the same and when such events or circumstances no longer prevail. [If such events or circumstances render performance of this Agreement (Contract) impossible for more than [ days/months] then either Party may terminate this Agreement (Contract).]"
b)"In the event of a circumstance of force majeure which relieves a party from the performance of its obligations under this Agreement (Contract) the Party claiming relief shall nevertheless use its [reasonable/best] endeavours to perform its obligations as soon as practicable."
c)"In the event of force majeure [meaning a circumstance as defined above or an event beyond the reasonable control of a Party] which causes a delay in the performance of this Agreement (Contract) then the time for performance shall be extended for a period equivalent to the period of force majeure. If the circumstance of force majeure exceeds [ days] then either Party may give notice to the other to terminate this Agreement (Contract). "
What does Halsbury's say about Force Majeure?
Many contracts expressly provide for performance to be excused if rendered impossible by unavoidable cause such as act of God1, the Queen's enemies2, act of state3, force majeure4 or vis major5.
Stipulations to that effect are effective6, provided that they are not uncertain in their terms7 and that there's compliance with any notice requirement9.
A force majeure clause (as such a stipulation is usually called) must be construed in each case with due regard to the nature and general terms of the contract and, in particular, with regard to the precise words of the clause9.
Such a clause on its proper construction may allow the court to take account of the promisor's obligations under other contracts despite the fact that, as a rule, it's no excuse that contracts with third parties prevent the fulfilment of the contract in question10.
When the contract excuses a party from delays due to unavoidable causes, he may be outside the protection of that provision if he fails, before making the contract, to inquire whether such unavoidable causes exist and to inform the other party11.
The party may not be protected by the clause where a force majeure event doesn't in fact render performance impossible12.
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