Unsurprisingly, some contracts are proving difficult to fulfil during these unprecedented times. This has led to increased interest in so-called ‘force majeure’ clauses. However, unfortunately for some proving that these apply is rarely simple.
What is a force majeure clause?
Unlike in some other countries, ‘force majeure’ has no specific meaning in English or Scots law. Instead, it is used to refer to clauses that change parties’ contractual obligations if major, unforeseen events prevent, delay or hinder their ability to fulfil them.
Does coronavirus count?
Like so many legal questions, that depends on the contract. For a particular contract that has a force majeure clause, two questions will be particularly relevant to understanding whether it applies in this case. First, is coronavirus the kind of event that might trigger the clause? Sometimes, contracts will list specific events, such as acts of government, wars, terrorist attacks or hurricanes, that could have the potential to change contractual obligations. If a contract includes epidemics or pandemics in a list of this kind, that will make it much easier for a party to rely on the force majeure clause in the current situation. If there is a list, but that list doesn’t include epidemics or pandemics, then this shouldn’t be a major problem unless it is stated or implied that the list is supposed to be exhaustive. Other times, the phrase ‘force majeure’ itself is used instead of a list – although this is rare, because its definition is so unclear.
However, it isn’t enough to simply show that a major, unforeseen event has occurred. The second question to consider, and often the more difficult one, is whether it has had the required effect on a party’s ability to fulfil the contract. While some contracts allow terms to be changed if a major event ‘hinders’, ‘delays’, ‘impedes’, ‘impairs’ or ‘interferes with’ performance, others require that it ‘prevents’ it or makes it impossible. The distinction is crucial.
If one of the first group of terms is used, then a firm might be able to rely on the clause in a situation where it has enough staff or raw materials to deliver on the contract in question, but only if it does not fulfil obligations in other contracts. However, this kind of situation might well not be considered to ‘prevent’ the firm from fulfilling the contract. In either case, however, it is very unlikely that a firm could rely on a force majeure clause simply because increased costs made it less profitable for it to deliver on the contract.
What happens if a force majeure clause is triggered?
The contract won’t simply be wiped clean. Depending on the terms of the contract, certain obligations may be suspended until the force majeure event comes to an end. In longer-term contracts, there may also be provisions for terminating the contract, but only under very specific circumstances.
What if there isn’t a force majeure clause, or it doesn’t apply?
In some cases, parties may be able to rely on the ‘doctrine of frustration’, according to which the terms of a contract no longer apply if an unanticipated event after it is formed, which is not the fault of any party, makes performance of the contract impossible, illegal or unrecognisable. However, these cases are extremely rare. After all, contracts would have little purpose if they weren’t binding!