When Can Parties to a Contract Rely on Force Majeure?

Many commercial contracts contain force majeure clauses, although they may not be labelled so explicitly or necessarily make reference to the term ‘force majeure’. The purpose of these contractual clauses is to defend the parties from a breach of contract claim in the event they are unable to perform their obligations because of an event that is outside their control. These are known as ‘supervening events’, and can be things such as war, pandemics and hurricanes, although every eventually is unlikely to be listed in the clause. These clauses therefore help parties to understand what their obligations are should such an event arise and what to do if they are unable to perform their contractual obligations because of a supervening event. 

Neither statute nor the common law provides a definition either force majeure itself, or a force majeure event in English Law. When drafting a contract, therefore, the parties can decide between themselves what kind of event will amount to a force majeure, and what consequences this will have on their obligations. 

Covid and Force Majeure

Covid’s huge effect on business, specifically the nationally mandated lockdowns, were seen by many businesses as the kind of ‘supervening event’ their force majeure clauses were drafted for. In sectors including travel and hospitality, for example, carrying out basic contractual obligations became unnecessarily burdensome and financially difficult. 

Recently various legal challenges were brought on the basis of force majeure. The connecting theme which emerged from these challenges was their idiosyncrasy: the meaning of a force majeure clause, and therefore its effect, entirely depends on its wording. The Court therefore has to decide whether the clause applies in the relevant circumstances. 

It is useful to note that when the Courts interpret the words of any force majeure clause, they look to determine objectively what the parties intended when they made the contract, allowing the words their natural and ordinary meaning. What the Courts have been resistant to do is relieve a party from an unfavourable contract: they have made it clear the pandemic should not be a pretext to remove oneself from unwanted contractual obligations, even if it has made it more difficult to fulfil them. 

War and Force Majeure

It is not just the pandemic that has highlighted force majeure clauses: the exceptional sanctions regime which has been imposed on Russia by the EU, US, UK, Japan (and others) in response to its invasion of Ukraine has also been seen by many as a ‘supervening event’. First of all, force majeure and war is twofold: for the clause to apply, the war has to not only exist, but actively stop the parties’ ability to fulfil their contractual obligations. 

The clause made reference to ‘war’, this may not be sufficient given Russia has not technically declared war on Ukraine, calling the conflict a ‘special military operation’. Much may therefore depend on how ‘war’ is defined in the contract. 

Sanctions

Sanctions are even more complex an issue. It is relatively unlikely that sanctions would be specifically mentioned as a force majeure event, and so a wide definition of ‘hostilities’ or ‘conflict’ may have to suffice, as this could cover the broader consequences of such a conflict.  Provided, however, either member of the party is not on a sanctions list, there is no prohibition to continue the contractual relationship with that party: a political objection to Putin, therefore, will not count as an intervening event. 

On another hand, if a party is unable to perform its contractual obligations because this would be in breach of the currently imposed sanctions, it should be possible to terminate the contract without risking damages since some contracts might have a provision allowing termination without notice on this basis. 

In English law there is also a doctrine of frustration by which a contract may be discharged when something occurs after the formation of the contract which makes it legally or commercially impossible to fulfil the contract. It might be possible to terminate the contract because the contract was frustrated. 

If you are in a position where you might be effected, please contact our team for advice.