Force majeure clauses: how recent global challenges have made certain events more foreseeable

English law does not provide a universal concept or definition of force majeure and instead is only operable in so far as it is contractually agreed. A force majeure clause typically excuses a party, or the parties, from fulfilling their obligations in a contract due to events or circumstances beyond a party's control.

Force majeure clauses have historically often been overlooked as 'boilerplate clauses', but in light of recent events, such as climate change and COVID-19, they are playing an increasing role in contractual negotiations. It is imperative that parties are aware of how a force majeure clause might be interpreted should they need to invoke one.

The impact of climate change and Covid-19

An 'act of God' is often referred to in force majeure language, with hurricanes, earthquakes and other natural events or freak weather conditions, which have significant and unavoidable repercussions. Due to the effects of climate change, acts of God are likely to increase significantly both in frequency and severity, so particular attention should be given to the inclusion of such wording when you are negotiating terms with parties based in areas more prone to these 'acts', because they may not fall within the unforeseeable nature of force majeure circumstances.

The unforeseeable aspect of a force majeure event has also been scrutinised in light of Covid-19, and discussions continue as to whether this particular pandemic is now foreseeable, meaning it falls outside the scope of force majeure.

At the start of the Covid-19 outbreak, the global economy and markets spiralled, culminating in some businesses being unable to fulfil obligations under their contracts. Whilst initially this pandemic was classed as unforeseeable and therefore parties could invoke their force majeure clauses, now that Covid-19 is more widely recognised as an ongoing risk to both our health and our supply chains, it is no longer an unforeseeable risk.

On this basis, parties may find themselves unable to rely on force majeure wording if they are unable to fulfil contractual duties due to disruption caused by or related to Covid-19. To try and mitigate the contractual risks associated with Covid-19, we are seeing an increase in clauses which specifically address the impact of Covid-19 by setting out a contractual procedure to follow which allows the parties to navigate a commercial solution within a pre-agreed structure.

Creating a reliable force majeure clause

Turning to look at the construction of a force majeure clause more broadly, standard force majeure wording will set out an exhaustive list of 'uncontrollable' or 'unforeseeable' events that a party can rely on that will trigger a right to suspend contractual performance. In addition, to act of God and pandemic noted above, these events might include natural disaster, government order or law, action by any governmental authority or a national or regional emergency. Parties should consider (i) the likely occurrence, (ii) the impact and (iii) whether force majeure is the sole cause of an event when drafting and/or considering force majeure clauses.

The occurrence of an event: A party will need to show that one of the events listed in the contract has occurred to successfully rely on the clause. Aside from the specific events, there will often be some catch-all wording, such as "other causes beyond the parties' reasonable control". These definitions should be considered carefully as they are incredibly broad and can allow parties to wriggle out of their obligations. Nevertheless, the recent ruling in Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] found that, despite catch-all wording, an unforeseen dip in the world's financial markets did not trigger a force majeure clause. This was because the financial markets weren't "even remotely connected" to the other events listed in the force majeure clause. Therefore, parties need to consider realistic events that are relevant to the commercial environment they are operating within and include those in their force majeure clause, rather than relying on the catch-all provisions.

Impact on performance: If it can be established that there has been a trigger event for the force majeure clause, the party must then show that the event has had a detrimental impact on the delivery of the contract; for example, it has "prevented, hindered or delayed their performance". During the Covid-19 outbreak, where contracts included 'pandemic' in their force majeure clauses, a party was not automatically excused from fulfilling their obligations if the pandemic did not have a detrimental impact on their performance in practice.

The defaulting party must show that the event physically or legally prevented them from performing their obligations, rather than making performance difficult or unprofitable. Accordingly, significant attention should also be given to the effect the event has on performance. For example, by defining the impact as "hindered" the defaulting party need only prove the events makes it substantially more difficult rather than impossible.

Sole cause: Causation is likely to be a heavily disputed factor. The party seeking to rely on the force majeure clause must show that the event was the sole cause for the party's inability to perform their obligation. For example, in Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018], the defendant tried to rely on the force majeure clause in their contract for hiring an oil drilling rig when the Government of Ghana imposed a drilling moratorium preventing them from undertaking their operations. The court found that the main cause for the defendant not being able to continue its operations was because the government had rejected the defendant's drilling plan, a failure that was not a force majeure event because the plan covered a wider area than the one affected by the moratorium. Taking a common-sense view in light of this ruling, where there have been two events that have led to non-performance of a contract, if the main event is not covered by the force majeure clause then it will not be possible to rely on the force majeure clause in respect of an ancillary event.

Conclusion

When considering force majeure wording in contract drafting and negotiations, we recommend focusing on these commercial, practical elements to build robust protection:

• Consider the other parties to the agreement, their industry and their location. 
• Consider which events you want to form part of an exhaustive list that make up a force majeure clause and specify them.
• Consider who is likely to benefit from the excused performance and decide if this is realistic for your business.

Force majeure clauses can help to alleviate difficult circumstances but be careful to ensure they are drafted appropriately, taking into account the contracting parties and the subject matter of the contract.  

If you would like further information or assistance with drafting force majeure clauses, or you would like us to review any contractual provisions you already have in place, please get in touch with Alexandra Hammond or Beth Horsham in our Commercial team on [email protected] or [email protected].