The underlying principle of a force majeure clause is that no party to an agreement should be held to its performance obligations to the extent that performance is prevented by unexpected circumstances outside that party’s control. Although the term force majeure is well known to lawyers and business people, it derives from French law and it has no recognised meaning in English law. It should therefore only be used in agreements when it is properly defined. Any party affected by continuing force majeure events will not be required to perform, or be liable for failure to perform, its obligations as a result of those events.

Defining and interpreting “Force majeure events”

Force majeure events must be defined in any agreement where a force majeure clause is used. They are usually defined as acts, events or omissions (or similar expressions) beyond the reasonable control of the party concerned. If there is doubt about whether specific events of particular importance in the context of the proposed transaction are included, they can be expressly included. From the point of view of the party that is most likely to invoke the force majeure clause, examples of events which may warrant express inclusion are:

  • Industrial action (where, in the absence of a specific provision, the party relying on the force majeure clause may be faced with the argument that it could have avoided the industrial action by giving in to wage demands).
  • The default of sub-contractors or suppliers who, it may be argued, would not have defaulted if they had been more diligently supervised or better paid.

Conversely, the other party may wish to ensure that these events are omitted. In some agreements, one party (typically a buyer) may wish to agree only a very tightly defined clause, listing only certain acts, events, accidents or omissions as force majeure, and excluding all other possibilities. Where risks are allocated to one party to deal with under a disaster recovery plan, it may be appropriate to carve that risk out of the force majeure protection.

Interpretation of force majeure clauses

The party relying on the force majeure clause must prove that the event falls within the clause. Force majeure is different from (and often preferable to) the common law doctrine of frustration, which only applies in more restricted circumstances and which discharges the parties from their liability. Under the doctrine of frustration, relief is only available where performance has become impossible.

The fact that performance may be more difficult or expensive than anticipated is not sufficient. In Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323, Parker LJ in the Court of Appeal said that any clause which included language referring to events “beyond the control of the relevant party” could only be relied on if that party had taken all reasonable steps to avoid its operation or mitigate its results. This appears to be a rule of interpretation. In Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA (No 2) (The Marine Star) [1996] 2 Lloyd’s Rep 383, Saville LJ in the Court of Appeal held that the proper approach to a force majeure clause is to interpret it by reference to the words the parties had used, not their general intention.The Court of Appeal has held that a force majeure clause regarding compliance with governmental requests required such requests to be independent of the affected party and beyond its control.

In that case, a governmental authority’s request to a party to a contract not to perform the contract did not fall within the force majeure clause in the contract because the affected party had instigated the procurement of the request from the governmental authority. This is a similar point to the issue raised in Channel Island Ferries, and indicates that the courts will assume that the parties’ intention was to grant relief only where the event was genuinely outside their control.The ejusdem generis rule of interpretation, where a general word is assumed to be qualified by preceding examples which are of a common category, does not automatically apply to clauses in commercial documents. The court will ask what the parties intended, and is ready to give general words their wider and natural meaning where appropriate. When drafting clauses that may be subject to the ejusdem generis rule, care should be taken to exclude it if it is not intended that it should apply.

Effect of a force majeure clause

The effect of a force majeure clause will depend on how it is drafted, but for the most part, force majeure clauses are suspensory, that is, the affected obligations do not go away, they are simply suspended while the force majeure event continues (unless the parties agree otherwise). In some cases, the non-performing party will have to serve notice of force majeure on the other party, in order to benefit from the clause, in others, the protections of the force majeure clause will be automatically available to the non-performing party.

Once the force majeure clause is triggered, the non-performing party’s liability for non-performance or delay in performance is removed, usually for as long as the force majeure event continues. In addition, the parties may also agree that the benefit of a force majeure clause should only be available where the affected party had taken all possible steps to avoid the event or the impact of its consequences. In many cases, this will be difficult for the affected party to prove.

Although many force majeure clauses go no further than to suspend the parties’ obligations so long as the force majeure event continues, this may be unsatisfactory if it becomes commercially unfeasible for the parties to resume performance of the agreement once the force majeure event ceases. To cater for this, some force majeure clauses allow either or both parties to serve notice terminating the agreement after a specified period so that they can make alternative arrangements.

Termination can be without liability (except in respect of antecedent breaches), which preserves a neutral position but it may also be necessary to consider whether this would benefit one party, for example, if the agreement provided for pre-payment for goods or services which were not provided due to the force majeure event, the paying party should be entitled to restitution.

Unfair Contract Terms Act 1977 (UCTA) and Unfair Terms in Consumer Contracts Regulations 1999

The consequence of invoking a force majeure clause is that a party will not be obliged to perform its obligations. This means that the clause will be an exclusion covered by section 3(2)(b) of UCTA (which governs standard terms and consumer contracts). The clause would therefore need to be reasonable to remain valid. When one party seeks to classify events, which are in fact within its control, as “force majeure”, this could potentially be unreasonable. Note than in consumer contracts, the reasonableness of a force majeure provision may be more difficult to satisfy than in a business-to-business contract. The provision will also be subject to the fairness test under the Unfair Terms in Consumer Contracts Regulations 1999.

Force majeure-what does it actually mean?