What happens to the parties to a contract if circumstances change in a way that affects one party’s performance of the contract? Can the affected party avoid its contractual obligations?
This is an old piece of contract law given new life by the prospect of a no-deal Brexit. Lawyers love a bit of Latin to create a “smoke and mirrors” mystique to their advice. Force Majeure – often know as an act of god – actually means the happening of events outside the control of the parties. In a well drafted contract there will be a clause or definition stating exactly what sort of things this could be, for example, power cuts in a contact to provide services, motorway closures in a contract for delivery of goods, right up to epidemics and pandemics, plagues of locusts and famously zombies in Amazon’s terms of service.
The reason for the inclusion of force majeure clauses in contracts is often overlooked, and the clause included as a “boilerplate” clause (more smoke and mirrors). Boilerplate clauses are standard contractual terms that are routinely included in many contracts – such as setting out which jurisdiction’s law will govern the contract. In fact, if you are the party buying goods or services, a force majeure clause may not be in your interest. The effect of the clause is to prevent the party that is affected by the event from being in breach of contract, and instead to suspend that party’s obligations. The classic scenario relates to a charter of a ship, which is late to arrive in port due to bad weather. The delay means that the charterer’s stock perishes, and he wants to cancel the contract because it is pointless to transport spoiled stock. A valid force majeure clause would mean that the delay simply suspended the contract until the ship arrived, and therefore the charterer would be unable to claim damages for breach of contract.
In the context of Brexit, the circumstances of the UK’s departure from the European Union could affect the commercial bargain underlying existing contracts, for example in relation to changes in taxes and tariffs. Without the circumstances of Brexit being spelled out in a force majeure clause, the consensus is that a typical force majeure clause would not be triggered by Brexit. It is a well established principle under English law that a change in market circumstances which affects the profitability of a contract, or the ease with which it can be performed, is not a Force Majeure event.
If you would like any further information about force majeure clauses and whether they are appropriate for you, or help with any of your trading terms, please contact Jane Rudge on 0121 227 3885, email@example.com or Stuart Price on 0121 227 3867, firstname.lastname@example.org