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Practical steps to enforce a force majeure clause

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Can you rely on a force majeure clause?

Unable to meet demand

As has been seen at the beginning of 2021 with Astra Zeneca unable to fulfil its contractual commitments for vaccine supplies to the EU, staff shortages and supply issues can result in unhappy customers facing delays and unable to meet the demands of their own customers. This in turn leads to customers looking at the termination provisions in their contracts and sourcing goods from elsewhere to fulfil orders.

Implications of not fulfilling orders

If your company is unable to meet its contractual obligations, it could potentially be liable for damages to the other party, unless the contract contains a “force majeure” clause.

What’s a “force majeure” clause? A force majeure clause essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond their control, such as war, strike, riot, epidemic, sudden legal changes or an event described as an Act of God, prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure. Tip. Before relying on any force majeure clause, it’s best to speak to your customer to see if delivery times can be extended. Also consider whether you could source alternative suppliers or delivery methods, even if at a higher cost. Tip. If the customer is unwilling to re-negotiate look at the contract to see if it contains a force majeure clause which could potentially excuse your company from delay.

Tip. Before enforcing a force majeure clause, seek legal advice as to whether you have the right to do so. If you don’t, you may give the other party the right to claim damages against you.

Are pandemics a force majeure?

Assuming the contract is drafted under English or Scottish law, the answer depends on the circumstances and the precise wording used. It’s up to the party seeking to rely on the force majeure clause to excuse its late or non-performance to satisfy the court that this is the effect of the clause.

Tip. Does the clause include the term “epidemic” or “pandemic”. If it does, this should cover coronavirus. If the clause includes “act of government”, this can be relied on where the government has imposed travel restrictions or required businesses to close. Note that the position with government recommendations rather than orders is less clear.

Tip. Where epidemic or pandemic is not referred to, see if the contract makes it clear that the list is not exhaustive. If the contract doesn’t make this clear, it can be difficult to argue that the parties intended to include a pandemic.

Tip. Rather than listing specific events, the contract might instead refer to events “beyond the parties’ reasonable control”. Given the unprecedented nature of the coronavirus pandemic, the courts are likely to be generous in their interpretation of the wording if parties have encountered genuine difficulties in performing the contract.

For the practical steps to enforce a force majeure clause, visit https://www.tips-and-advice.co.uk , Download Zone, year 13, issue 7.