Under English law, if a contract becomes impossible to perform, or is only able to be performed in a manner substantially different from that envisaged by the Parties at the outset, then the doctrine of “frustration” may apply and the contract be brought to an end. This may not be in the interests of either of the Parties who may prefer the contract to be suspended rather than terminated, for the duration of the frustrating event, or for a specific period.
In certain continental jurisdictions, where delay in or failure to perform a contract by a Party for reasons beyond its control occurs, then the doctrine of “force majeure” may apply. This generally results in suspension of contractual obligations. But for force majeure to apply in a contract governed by English law, a clause is needed in the contract which explains the procedure.
The Parties may, during the contract negotiation, want to agree the position under the contract in such circumstances. Here it is important to ensure that force majeure will normally only apply if performance is delayed or prevented due to circumstances beyond the reasonable control of the party affected.
When agreeing “force majeure” provisions the Parties should agree the consequences of the force majeure circumstance – for example:
- a) the extent of the liability of the Party claiming force majeure.
- b) whether the contract is to be terminated and, if so, the impact on the respective rights and obligations of the Parties;
- c) whether there is to be an extension of the time for performance of the contract obligations as originally envisaged, or whether they are to be varied.
- d) whether in the event of an extension of the time for performance of the original obligations, the extension is to be open ended, or subject to a specific period before those obligations are waived, or the contract comes to an end;
- e) whether any sums under the contract should be paid immediately, or whether sums paid prior to the force majeure event should be repaid.
In considering force majeure provisions the Parties may wish to be more specific than simply referring to “circumstances beyond the control” of a Party to avoid debate as to what circumstances are in fact beyond the control of the party claiming relief; the usual matters which the Parties might define as being events of force majeure are:
(i) Act of God including tempest, fire, or natural disaster.
(ii) War, civil war, riot, sabotage or act of terrorism.
(iii) Government sanction, embargo, import or export regulation or order.
(iv) Labour disputes, including strikes, lockouts, boycotts or other industrial action (but usually strikes of the labour force of the party claiming force majeure are expressly excluded);
(v) Failure in the transportation of equipment, machinery, or personnel or in the provision of any utility including power, gas, water, or communication services.
To avoid failure to specify a particular event of force majeure, it is usual to include the general sweep-up proviso “or any event or circumstance beyond the reasonable control of a Party”.
The following general precedent clauses may form the basis for discussion between the parties as regards the inclusion of force majeure provisions in any agreement between them.
- a) “No liability shall attach to a party which is unable to perform its obligations under this Agreement due to events or circumstances beyond its reasonable control. The Party affected by such events or circumstances shall advise the other as soon as practicable of the same and when such events or circumstances no longer prevail. [If such events or circumstances render performance of this Agreement impossible for more than [ days/months] then either Party may terminate this Agreement.]“
- b) “In the event of a circumstance of force majeure which relieves a party from the performance of its obligations under this Agreement the Party claiming relief shall nevertheless use its [reasonable/best] endeavours to perform its obligations as soon as practicable.“
- c) “In the event of force majeure [meaning a circumstance as defined above or an event beyond the reasonable control of a Party] which causes a delay in the performance of this Agreement then the time for performance shall be extended for a period equivalent to the period of force majeure. If the circumstance of force majeure exceeds [ days] then either Party may give notice to the other to terminate this Agreement. “