What is Force Majeure?
Posted by CSB
16 June 21
Is there legislation on force majeure in your law system?
No. The term “force majeure” has no recognised meaning in English law and should only be used in construction agreements when adequately defined.
If so, what is the text of the force majeure clause in your civil code?
There is not one.
If a contract says you can terminate for “force majeure”, is there any guidance/case law regarding what this means (in the absence of it being defined in the relevant contract)?
As noted above, the term “force majeure” has no recognised meaning in English law. As a result, using this term alone in an agreement with no accompanying definition is unlikely to be effective. For example, a clause stating that the “usual ‘force majeure’ clauses shall apply” has been held void for uncertainty (British Electrical and Associated Industries (Cardiff) Ltd v Patley Pressings Ltd).
Is there a difference in all of this in B2B transactions versus B2C transactions?
Under consumer rights law in England and Wales (e.g., the Consumer Rights Act 2015), a supplier’s force majeure clause in a B2C contract will need to satisfy the relevant legislation’s concepts of (1) fairness and (2) transparency. In practice, this means that a supplier may only exclude liability or terminate the Agreement for delay or non-performance. This is genuinely due to an event outside of the supplier’s control, at the risk of this exclusion/termination being deemed “unfair” to consumers.
In B2C contracts, suppliers should avoid giving examples of specific events within their control (like shortages of stock, failures of communications systems, etc.) and state that they will take reasonable steps to prevent or minimise delay or non-performance. Additionally, where there is a risk of substantial delay, the guidance suggests that the consumer should be given a penalty-free right to terminate the Agreement (including the right to a refund of pre-paid amounts).
Given that the term “force majeure” may not be easily understood by consumers, it is also advisable that Suppliers use wording such as “events outside our control” in B2C contracts instead.
The Competition and Markets Authority, the UK’s consumer law regulator, has been active on behalf of consumers in protecting their interests in Covid situations. They published a detailed statement of actions by businesses considered unfair (see Statement on coronavirus (COVID-19), consumer contracts, cancellation, and refunds – GOV.UK (www.gov.uk)
Given that there is no legislation on force majeure in England and Wales, in B2B contracts, the parties must define what constitutes a “force majeure event”, which is frequently subject to negotiation depending on the industry in question and the relative bargaining power of the parties. The statutory requirements of fairness and transparency in consumer contracts do not apply (but see below).
Is there a difference in judgement when the force majeure clause is laid down in a contract or T&C’s?
Under the Unfair Contract Terms Act 1977 (UCTA), which applies to written standard terms of business in B2B contracts, a force majeure clause will only be valid if it satisfies the” reasonableness” test defined in UCTA. As in the case of B2C contracts, where one party seeks to classify as “force majeure events” events that are, in fact, within that party’s control, this could potentially be deemed “unreasonable” by a court.
By contrast and as noted above, in standard B2B contracts, which do not constitute common terms of business, the definition of “force majeure event” is a matter for negotiation between the parties and is not subject to the exact reasonableness requirements.
Do you have examples of force majeure clauses that you think (would) work well in practice?
EITHER (Where you are acting for the party more likely to want to rely on the force majeure clause, e.g., a service provider)
In this Agreement, “force majeure” shall mean any cause preventing either party from performing any or all of its obligations which arises from or is attributable to strikes, lock-outs or other industrial disputes, nuclear accident or acts of God, war or terrorist activity, riot, civil commotion, malicious damage [(excluding malicious damage involving the employees of the affected party or its sub-contractors)], compliance with any law or governmental order, rule, regulation or direction [coming into force after the date of this Agreement], accident, breakdown of plant or machinery, fire, flood, storm or default of suppliers or sub-contractors and, where they are beyond the reasonable control of the party so prevented, any other acts, events, omissions or accidents.
OR (where you are acting for the party less likely to want to rely on the force majeure clause, e.g., the recipient of service)
In this Agreement, “force majeure” shall mean any cause preventing either party from performing any or all its obligations which arise from or are attributable to acts, events, omissions, or accidents beyond the reasonable control of the party so prevented [including, without limitation, to the extent that these are beyond such control, [nuclear accident or acts of God, war or terrorist activity, riot, civil commotion, fire, flood, or storm]] except that:
neither lack of funds nor a default or misconduct by any third party employed or engaged as an agent or independent contractor by the party claiming force majeure shall be a cause beyond the reasonable control of that party unless caused by events or circumstances which are themselves force majeure; and
mere shortage of labour, materials, equipment, or supplies shall not constitute force majeure unless caused by events or circumstances which are themselves force majeure.
Strikes, lockouts, or other industrial disputes involving the party’s workforce so prevented or of any of its subcontractors or suppliers or the occurrence of an event associated with the economic and monetary union in the European Union shall not constitute “force majeure” for this Agreement.
Suppose either party is [prevented] [prevented or constrained] from the performance of any of its obligations under this Agreement by force majeure. In that case, that party (the “Claiming Party”) shall as soon as reasonably possible [and in any event within one (1) Business Day after commencement of the force majeure] serve notice in writing on the other party specifying the nature and extent of the circumstances giving rise to force majeure. It shall subject to service of such notice have no liability in respect of any delay in performance or any non-performance of any such obligation [save for any payment obligation which shall continue in full force and effect] (and the time for performance shall be extended accordingly) to the extent that the delay or non-performance is due to force majeure [PROVIDED THAT:
the Claiming Party could not have avoided the effect of the force majeure by taking precautions which, having regard to all matters known to it before the occurrence of the force majeure and all relevant factors, it ought [reasonably] to have taken but did not take; and
the Claiming Party has [taken all steps as are necessary] [used [reasonable/best] endeavours] [(without being obliged to incur any expenditure or cost)] to mitigate the effect of the force majeure and to carry out its obligations under this Agreement in any other way that is [reasonably] practicable.]
[If either party is prevented from the performance of [substantially] all of its obligations by force majeure for a continuous [or aggregate ]period of more than [three ][six ]months in total, the other party may terminate this Agreement immediately on service of written notice upon the party so prevented, in which case [neither party shall have any liability to the other except that rights and liabilities which accrued before such termination shall continue to subsist] [or] [if appropriate, provide for any specific provisions which are to be saved and specify whether payments are to be made for goods or services already delivered or rendered, or goods not paid for are to be returned or compensatory payments are to be made].]
[If [either party] is prevented from the performance of [substantially] all its obligations by force majeure for a continuous [or aggregate] period of more than [one] month[s] in total (the “Force Majeure Period”), the [Licence Term] shall be extended by a period equal to the Force Majeure Period [, subject to earlier termination of the Agreement under clause [1.3]].]
Do you (already) have an example of a force majeure clause which is “corona future proof” or “virus-proof”, and you willing to share that with us?
Are there any alternative remedies that a party could consider based on being unable to perform a contract due to the Coronavirus?
Where there is no force majeure clause (or where there is a force majeure clause, but the effects of Coronavirus are outside the scope of the clause), the parties may seek to rely on the common law doctrine of frustration, which applies where the performance of a contract had become legally or physically impossible through no fault of the parties (e.g. during WWII, several agreements were frustrated when it became lawfully impossible to trade with the enemy). However, in practice, the doctrine of frustration is rarely applicable and is also unlikely to apply where the performance of the contract is delayed but not “impossible” to perform.
Absent any other contractual termination rights (e.g., termination for convenience); a party could also seek to terminate the contract by relying on the common law doctrine of repudiatory breach.