In recent times, natural occurrences such as the extreme flooding this winter, the ash cloud and the bird flu crisis have highlighted the need to consider more carefully a standard and often overlooked, boilerplate contractual clause.
Latin for “superior force,” a force majeure clause in contracts aims to essentially free or suspend one or both of the parties from liability or obligation when an extraordinary event or circumstance beyond their control, prevents one or both parties from fulfilling their obligations under the contract.
For example, 2012 was one of the wettest years for half a century and this winter may surpass this. Periods of drought followed by extremely heavy rainfall inevitably has an impact on the success of food crops grown in the UK, both in terms of the quantity and quality. Growers or others in the food supply chain face poor returns and securing replacement crops at comparable prices elsewhere can be difficult, if not impossible. Additionally, where commitment to supplying a particular quantity or variety of crop at the beginning of the season has been made, there is the prospect of defaulting on such commitments leading to claims from the customer based on the additional cost incurred in obtaining replacement supplies on the open market.
Firstly, if there is no express clause in the contract, no force majeure protections will be implied. Therefore it is always best to include one, just in case.
Secondly, the term force majeure has no set meaning under English law. Therefore protection is only available if the particular circumstances are covered in the clause itself.
A typical clause will provide that if certain events or circumstances arise which “delay, hinder or prevent” performance by a party, which are beyond the party’s reasonable control, that party is excused performance and will have no liability to the other party.
Some examples of force majeure events or circumstances are:
Many of these events will be uncontroversial, other less so. For example inclusion of non-performance by third parties is likely to trigger negotiation. This is because there may be an argument between the parties about whether the non-performance by third parties appointed by the affected party is really beyond its reasonable control.
Looking back at our food chain supply example, whilst the inclusion of adverse weather conditions or drought as a force majeure event would be beneficial to the crop growers, it is likely to be resisted due to the difficulty in defining the point at which adverse weather crosses the line between being a normal risk of trading and being so exceptional and unforeseeable as to release parties from contractual performance.
Notwithstanding this, best advice is to ensure to include a force majeure clause and if already included as standard, ensure its precise wording is examined and not just simply accepted as drafted. Care taken to address the potential risks when negotiating could make the difference between just a poor position on account of circumstances beyond a supplier’s reasonable control preventing contractual performance and a far worse position where the supplier in addition has to meet the cost incurred by its customers in procuring replacement supplies.