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May the force be with you
Page 40
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Tragic events such as the recent bombings in London stop deliveries in their tracks. Should customer contracts cover these situations?
Stephen Sidkin reports.
As well as causing loss of life and injuries, the recent terrorist bombings in London had the more mundane effect of disrupting deliveries in the affected areas. Some businesses found it difficult to function as key employees were instructed not to come in, and severe congestion on many roads made journeys impossible. The end result was that many commercial contracts could not be followed.
The consequences of non-performance will depend on what the contract does or does not say. Many commercial agreements incorporate a clause designed to apply where contractual performance has become impossible because of circumstances that were not envisaged by the parties and are outside their control.
Typically, a provision of this nature is known as a force maj cure clause.
Such clauses can be quite detailed. Usually a well drafted clause will set out a series of force majeure events. It will then state the consequences of such an event occurring.
Often the clause will refer to a labour dispute. It should be made clear whether this refers to a strike concerning a contracting party's own workers or those of a third party.
Catch-all terms
Whether a terrorist act is covered will depend on the list of events. If there is no reference to such a situation then it will be a question of interpretation. As an alternative, a force majeure clause can provide a catch-all.
This could be in terms of circumstance beyond the seller's reasonable control. But how do you define "beyond reasonable control"? Some clauses may deal with this provision by restricting the relief available in a situation where the party has contributed to the delay before the event occurred.
However, even if a terrorist strike is an event covered by the force majeure clause, it is still important to examine the way in which the clause works. For example, does the party affected have to notify the other party of the force majeure event? Is there an obligation which requires the affected party to try and work round the force majeure event?
Often force majeure clauses will provide for the suspension of obligations during the period of the force majeure event. If this continues beyond a specific time it is usual for the clause to provide for the contract to be cancelled.
Compensation guard
The most important aspect of this agreement is that the force majeure protects your firm from having to pay compensation to a customer should deliveries be made impossible by a force majeure event. But this needs to be highlighted. A clause will be incorporated only if it is brought to the attention of the other party at the time the contract is made—it will not be incorporated into a contract simply because it appears on the back of an invoice.
The force majeure clause must be reasonable, as determined by the law concerning unfair terms. Force majeure clauses are usually found to be reasonable, but if the clause falls foul of the law the contract will be treated as if there was no force majeure clause.
If the contract does not contain a force majeure clause the position is far less certain. It might be that the contract will be regarded as "frustrated". This occurs when an event not envisaged by the parties renders the contract impossible to perform or is radically different from that which they imagined.The had news is that situations where a contract can be said to be frustrated are extremely narrow and unpredictable in their application.
While it is to be hoped that no operators were penalised for missing deliveries because of the London bombings, there are good reasons for parties making a contract to incorporate a force majeure clause.
Such a clause is designed to build in a degree of certainty. It guards against the possible application of frustration that can produce an arbitrary result. It is also open to the parties to specify what will happen in particular situations and enable business to be carried on with a degree of certainty. •