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COMMERCIAL CONTRACT VOCABULARY A - Z : F - FORCE MAJEURE

‘Force majeure’ (a ‘law French' phrase meaning ‘superior force’) is an event or circumstance that is unexpected, and which cannot be controlled. Force majeure events include natural events (earthquakes, floods, pandemics etc) and acts of people (strikes, riots, wars etc). A force-majeure clause is a contractual clause or provision which allocates, in advance, the risk of loss if a force majeure event (sometimes called a ‘supervening event’) makes the performing the contract impossible or impracticable.


Commentary

It is sometimes surprising to lawyers from civil law jurisdictions to learn that ‘force majeure’ has no real meaning in English law. Of course, sometimes events happen which make the performance of contracts either impossible or impracticable. We have seen a very clear example of this in the past year or so (since March 2020) in relation to a global public health situation (Covid-19) which has affected the ability of some parties to contracts – particularly cross-border agreements - to perform those contracts either fully or at all. Under English law, parties to contracts will only be able to rely on ‘force majeure’ if there is an express ‘force majeure clause’ covering the event or circumstances in the contract.


In an earlier post [1], we looked at the case of Totsa Total Oil Trading v New Steam Trading [2020]. In that case, the London Commercial Court looked at the effect of a force majeure clause in a supply contract for chemicals. In the post, we saw that a force majeure event covered by a valid force majeure clause will not necessarily extinguish [2] contractual obligations. Another case from last year (2020) which considered the effect of force majeure clauses was 2 Entertain Video Limited v Sony DADC Europe Limited [2020] [3].


The background to the case was that Sony owned a warehouse in north London. 2 Entertain Video Limited (“2E”) published and sold CDs, Blu-ray discs, DVDs and other home entertainment media. Sony entered into a contract (a ‘logistics services agreement’) with 2E, under which 2E stored some of its stock (CDs, etc) at the warehouse. In fact, the sales value of the stock which 2E stored at the warehouse was around £40 million.


In August 2011, rioting and violent civil disorder occurred in London. On the night of the 8th August 2011, the warehouse was attacked by rioters and looters who started a fire which destroyed the warehouse. The warehouse and all the stock inside, including that belonging to 2E, was completely destroyed. 2E only received £8 million from its insurance for the loss and brought legal proceedings against Sony for failing to keep the stock in the warehouse secure. Sony defended the claim. One of its defences was that the logistics services agreement contained a force-majeure clause as follows:


“Neither party shall be liable for its failure or delay in performing any of its obligations hereunder if such failure or delay is caused by circumstances beyond the reasonable control of the party affected including but not limited to industrial action (at either party), fire, flood, wars, armed conflict, terrorist act, riot, civil commotion, malicious damage, explosion, unavailability of fuel, pandemic or governmental or other regulatory action.”


Of course, it may be argued that the rioting, civil disorder, and looting was an ‘unforeseen event’. However, the judge – Mrs Justice O’Farrell – decided that the risk of intruders and ‘break ins’ was foreseeable – particularly as the warehouse had been broken into by intruders before. She decided that the risk of intruders and a possible fire were not outside the reasonable control of Sony and therefore Sony could not rely on the force-majeure clause as a defence.


This case highlights several things. Force-majeure clauses are often considered – even by some lawyers – to be boilerplate clauses [4] and therefore perhaps are not as important as the ‘operative provisions’ of a contract. This – as we have said before – is a mistake. Many disputes in commercial contracts involve boilerplate clauses.


As always, English cases should always be examined carefully to see what lessons can be learned by lawyers who draft contracts, as well as those who are involved in commercial litigation. The following, for example, should be noted:


· If you draft a contract and include a force-majeure clause, always include a definition.

· Consider carefully the real possibility of force majeure events. For example, some parts of the world carry different kinds of force majeure risks: for example, earthquakes in Turkey, tsunamis in parts of the Pacific Rim, political upheavals in politically unstable parts of the world.

· Think carefully about how a force-majeure clause should operate in a particular situation. Should there be a right of termination of the contract for the parties, or one of them?

· Remember: if an event is within a party’s control, it will not be a force-majeure event. 2E v Sony provides an example of this.



Notes:


[1] https://www.cambridgelegalenglish.com/post/force-majeure-clauses-in-contracts-totsa-total-oil-trading-v-new-stream-trading-2020-b2


[2] Here, ‘to extinguish’ basically means to put an end to something.


[3] [2020] EWHC 972 (TCC) – The full judgment can be read here:

https://www.bailii.org/ew/cases/EWHC/TCC/2020/972.html


[4] See our post on boilerplate clauses in the Commercial Contract Vocabulary series, here:

https://www.cambridgelegalenglish.com/post/commercial-contract-vocabulary-a-z-b-boilerplate-clauses


EXERCISE

In the text above, can you find verbs which collocate with the following nouns? [Collocation is a pair of words which can be used together to create a larger phrase which is natural in English: for example, to sign a contract – the verb ‘to sign’ collocates with the noun ‘a contract’ to form a natural phrase in English]


1. a risk

2. the contract

3. force majeure

4. contractual obligations

5. a contract

6. legal proceedings

7. the claim

8. a contract






ANSWER KEY

1. allocate [to allocate a risk]

2. perform [to perform a contract]

3. to rely on [to rely on force majeure]

4. extinguish [to extinguish contractual obligations]

5. to enter into [to enter into a contract]

6. brought [to bring legal proceedings (against somebody)]

7. defend [to defend the claim]

8. draft [to draft a contract]


Note: The contents of this post are for study and educational purposes only. They are not intended to be legal advice or opinion and should not be used as such. If you need legal advice, you should always consult an appropriate lawyer.


© Cambridge Legal English Academy 2021

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