If Covid-19 has seen our businesses (or those of our suppliers) shut down by law, or we are not able to perform our contracts due to working, transportation or other restrictions designed to stop the spread of the virus, then we may be rushing to check whether those contracts can also be suspended during the relevant period or whether non-performance is still considered a breach. And many contracts do contain a “force majeure” clause which excuses a party from performance (or at least on-time performance) if that party has been prevented or delayed by events outside their control (usually followed by a list of examples).
2. What does the general law define as force majeure?
In some places, the law may already set out a number of things that are automatically to be considered force majeure. A classic definition is contained in the French Civil Code: an event outside the relevant party’s control, that could not have been foreseen at the time of contracting, the effects of which couldn’t have been avoided by appropriate measures (as the motto goes: “l’extériorité, l’imprévisibilité et l’irrésistibilité”). One of Eden Legal’s favourite force majeure definitions comes from the Moroccan contracts and obligations code: which includes as examples: “le fait du Prince” (a great description for an arbitrary government decision), as well as “locusts” (very specific, but clearly meets all the criteria).
So, if our contract is subject to one of these laws then we have a good starting point. Also, various specific laws have been passed to protect consumers and specific sectors from the effects of the Covid-19 virus – so in Spain for example, package tour organisers benefit from relaxed rules regarding reimbursements for cancelled trips, relaxed even further where the organisers themselves haven’t been reimbursed by their own suppliers. (Not actually a consumer protection measure, then…)
Other legal systems, including English law, don’t have a statutory definition of force majeure and tend towards the principle that freely made contractual promises should be enforceable. To the extent of the promise, that is, with all the qualifications agreed in the contract itself.
3. What if the contract doesn’t have a force majeure clause?
It’s worth remembering that force majeure clauses give an “out” to one or other party. So, of course, there’s no particular reason to include one in any contract. If we didn’t, then the promises made should be absolute and we in effect agree to bear the risks of something getting in the way to prevent us from fulfilling them.
Even English law, however, has developed some rules to cover the situation where an unforeseen event makes it physically impossible to fulfil our contractual promises, or radically changes the nature of what was agreed to be done – i.e. the contract has been “frustrated”. The scope of these rules tends to be fairly narrow (they generally originated to cater for cases where goods or something physical that was the object of the contract was destroyed, and as they have the effect of automatically ending the contract they are not applied lightly), though more topical examples are also be covered such as: changes to the law after the contract was made (“le Prince” strikes again) or cancellation of major events (hashtags #Euro2020, #Tokyo2020). Eden Legal would like to hope that significant contracts would include a well thought-through force majeure clause, but as that’s not always the case we may be seeing some new (expensive, time-consuming and hard to explain to shareholders) cases relating to the doctrine of frustration.
4. So what about the contract?
Where force majeure is regulated by law, our contract may be able to expand what it covers – but usually not restrict it. If the statutory provisions are unhelpful, or as in England don’t exist, then the normal rules of contractual interpretation should apply. There is some technical legal debate about this, but in practical terms Eden Legal often finds it useful to consider force majeure clauses as exclusion clauses, that limit or exclude a party’s liability for what would otherwise be actionable breaches of contract.
There is a large degree of freedom relating to how these clauses can be drafted (although in English law they would be subject to a reasonableness test under the Unfair Contract Terms Act 1977). There is also a large degree of laziness when it comes to reviewing these clauses (perhaps not any more, though that horse may have bolted).
The things to check (if you receive a notice invoking force majeure, or want to make such a claim) would include:
(i) what kind of events are expressly included in the definition of force majeure?
Indeed, the purpose behind including these clauses may really be to try to make into events of force majeure things that normally wouldn’t be. And we do see a whole range of examples, some based on experience (fire, flood, riots, labour disputes), some hopefully not (war whether declared or not, terrorist actions), some incongruous (“inclement weather”), and some that we might consider something of a try-on (failure to secure supplies, failure of subcontractors). Payment of money is normally excluded, though these days it would take something dramatic to stop us accessing our bank accounts in some way. Eden Legal doesn’t believe that before now pandemics were included very often. However, “changes to laws” may have been and so lockdowns and confinements (which may in actual fact be the real problem rather than a party or its personnel actually being personally infected) may well be. But often we see a sweep up clause such as “or any other event outside of the affected party’s control” which does leave a rather attractive stable door open. “Act of God” is still sometimes seen, though risks having a fairly limited meaning covering natural forces and hazards such as floods or storms. Using the words “force majeure” on their own is probably the height of laziness – the English courts have had to work out what they mean to an extent, but then we are really placing ourselves at the mercy of case law that is sometimes conflicting, usually old fashioned, and rarely squarely applicable to our situation.
(ii) what type of effects are specified?
We may protect against being “prevented” from doing something, “delayed” or “hindered” (or “impeded” etc. etc.). This is important as these concepts don’t always overlap – if we agreed that the clause would operate if we were prevented, if we are just delayed it may not. And all these terms require causation – the relevant failure in performance must have been caused by the event claimed, and not have some other origin. Extra expense or economic hardship is unlikely to qualify (in the absence of an express hardship clause).
(iii) it is really force majeure?
It’s worth remembering that (subject to the precise wording of the contract) an event should only qualify as force majeure if it can’t be avoided or overcome using reasonable measures. A pandemic is not force majeure on its own, if we can have our business carried on by staff working from home, find alternative (domestic?) suppliers where required, or generally mitigate its effects. No law-breaking would be required – but as a customer we’d want to ensure that our supplier was acting reasonably before invoking force majeure (and as a supplier we might want the clause to be more flexible).
(iv) is any other process or condition stipulated that we must follow in order to rely on the clause?
Is written notice required? How soon? What if the normal methods of delivering notices are also affected by the force majeure? These may not be conclusive but may be important to limit and manage the situation. (If you’re signing a contract during a force majeure event then, even it that makes it foreseen and not technically force majeure, you’ll of course want to include some sort of contingency plan for what happens if either party is affected by the event or associated legal restrictions).
(v) what are the consequences?
We may just say that the affected party needs to resume performing under the contract as soon as possible. Or that service level agreements and credits won’t apply. Or we may want to say that if the non-performance continues for a certain time then the other party can terminate the contract and move on. Or perhaps what we really want is not to terminate the contract but to be able to buy from another party and so at least suspend the operation of any exclusivity clauses. Or if we are the supplier then we may want to be able to allocate (short) supplies among different customers in a reasonable way.
Even if our contract is subject to the laws of a jurisdiction where force majeure is regulated by statute, the courts are going to take a very strict interpretation of our force majeure clause. Probably a pandemic qualifies as an event of force majeure – and even more probably the acts of government to control its spread will too. Whether our particular case is covered will depend partly on how well our force majeure clause has been thought out, looking at its precise scope, the conditions for its application, and how it works with the other provisions of the contract. And the facts: Are we genuinely prevented, delayed or just hindered from performing? Have we followed the “rules” agreed, and done everything reasonably possible to overcome the obstacle? How long will it take us to return to business as normal? Are we talking to the other party to find some sort of reasonable solution? And what will we do in future contracts? Expect to see laundry lists of new force majeure events appearing in suppliers’ standard terms. But let’s also try to keep them relevant and applicable to the actual risks under the contract.
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