One contractual provision that companies may seek to rely upon is a “force majeure” clause. The purpose of a force majeure clause is that, if an event occurs which is outside of a party’s control which prevents, hinders or delays performance of the contract, a party will be able to suspend or terminate all or part of its contractual obligations and, importantly, will not be liable for its failure to perform.
To trigger a force majeure clause, the following need to have occurred:
It is important to note that, for performance of a contract to be prevented, it must be legally or physically impossible to perform. It is not enough to argue that it is simply more difficult to perform or unprofitable for the party concerned. The courts tend to interpret clauses that also provide for delay/hindrance more broadly.
Nevertheless, it is important to note that an increase in the cost of performing the contract is unlikely to be sufficient to trigger a force majeure clause. Instead, the party relying on the clause will have to demonstrate that the contractual obligations are now substantially more onerous than originally envisaged.
A force majeure clause can be drafted in a number of different ways. A standard clause will provide for suspension of contractual obligations until the force majeure event has ended. The contractual obligations will subsequently be revived. In some cases, the clause will allow a party to terminate the agreement after a specified period. This provision is important where it would be unfeasible for performance of the contract to resume at a later date.
It is common for a force majeure clause to specify that the party seeking to rely on the clause must give written notice to the other party. In these circumstances, it is vital the party seeking to rely on the clause acts in accordance with the terms of the contract.
Determining whether or not a force majeure clause has been triggered can be difficult as it will depend on a precise interpretation of the clause. It is therefore recommended that legal advice is sought so that the contractual risks, including the risk of counterclaims for damages for breach of contract, are understood in what is potentially a complex area of law.
For further help or advice, please contact Dispute Resolution specialist Natasha Wright on 0113 2802000 or email@example.com.
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Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.