This 41st issue of Insight (i) examines what force majeure is, (ii) considers the approach of the domestic standard forms to situations such as the Ebola pandemic and the ISIS threat, and (iii) provides practical tips for those who might be affected by force majeure on how to mitigate the risks that might arise.
Whilst it is unlikely in the most part that the threats posed by ISIS and Ebola will ever materialise, the existence of these threats has certainly caught the attention of the business community. Ebola has caused significant trading delays and disruption in West Africa: the export of commodities is being affected (as a result of which commodity prices have increased); a number of airlines have cancelled flights; there are areas where travel is either restricted or difficult; and some contractors have declared force majeure. The ISIS threat has caused similar problems in western Iraq and north of Baghdad, where trade sanctions and embargoes have also been imposed.
What is force majeure?
In general terms, force majeure is an event that relieves the parties from performing their obligations under the contract. Such events are usually exceptional events that are deemed to be beyond the control of the parties, and which make performance of the contract physically or legally impossible, as opposed to more difficult, time-consuming or expensive. Examples may include natural disasters such as hurricanes, floods, earthquakes and other "acts of god", as well as man-made disasters including war, terrorism, civil disorder, supply shortages and labour strikes.
The doctrine of force majeure is not one that is recognised by English law; instead parties have to rely on the common law concept of frustration. Frustration occurs when a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing that is radically different from that which was contemplated by the contract. It is a difficult test to fulfil, as what is essentially required is a radical turn of events which completely changes the nature of the contractual obligations, such as a change in the law which makes performance of the contract impossible. Due to the inherent difficulties that the concept of frustration presents, contracting parties often define the circumstances under which force majeure will apply themselves, by listing possible force majeure events in their contracts. Sometimes, force majeure is not defined at all which can be very problematic, as the declaration of an event that transpires not to be a true force majeure event carries considerable risks, as will be seen below.
Force majeure under the standard forms
JCT Standard Building Contract 2011
The JCT suite makes an express reference to the concept of force majeure at clauses 2.29.14 and 8.11, but notably, it does not define force majeure, nor does it provide any examples as to what might constitute a force majeure event.
Force majeure is, however, listed as a "Relevant Event" under clause 2.29.14. Other Relevant Events include civil commotion, or the use or threat of terrorism and/or the actions of the relevant authorities in dealing with such an event or threat. Civil commotion, or the use or threat of terrorism, would probably cover any ISIS-related performance failures, but any performance failures arising...