'Force Majeure' – the golden ticket to contractual disputes?

The recent volatile market conditions have seen an increase in the use of the defence ‘force majeure’, sometimes with little thought as to what this actually means. Recent strikes, driver shortages, extreme weather conditions, supply chain issues, and the lingering impacts from Brexit and COVID-19 have resulted in the use of force majeure becoming a common occurrence. 

We have seen an increase in forwarders’ claiming that their inability to perform their contractual obligations arose from an alleged force majeure event. As such, they are seeking to avoid liability for failure to deliver goods or perform other services. 

Effect of force majeure clauses

Force majeure clauses will, typically, seek to excuse the parties from on-going performance of certain obligations under the contract in the event of certain circumstances. 

Shorter form clauses often refer to events beyond the control of either party. Longer form clauses often list certain events which will trigger the operation of the exemption. They may also insist that not only should the circumstances be outside the parties’ control but also the consequences should be unavoidable.

English courts’ interpretation of force majeure clauses

Whilst we consider that such clauses are sensible insofar as they seek to relieve the parties of the very literal approach adopted by the English courts, such clauses are, in effect, exclusion clauses. Therefore, those clauses will be interpreted reasonably restrictively by English courts. 

Despite the term being thrown into the defence arena on a regular basis, it is not simply a case of claiming force majeure if a particular movement becomes difficult or expensive. If the movement can still be carried out, it is not force majeure. 

In Thames Valley Power Ltd v Total Gas & Power Ltd [2006], Christopher Clarke J said:

“The fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure or frustration”.

Comment

In the logistics and forwarding industries, parties may indeed find that the impact of COVID-19, Brexit or climate change has substantially increased the cost of performance of the contract. However, it may still be possible to transport and distribute goods to their intended destinations - but it may simply cost more to do so. 

If the forwarder encounters predictable delays at the border, for example, the initial cause of the delay may be outside its control; but perhaps, due to the foreseeability of the event, the consequences might have been avoidable.

Be careful when relying on such clauses, as this could result in haulier and insurers finding themselves involved in very expensive litigation. Force majeure clauses are a useful, but restricted, defence and should be used with caution. This also goes for wordings within policies that may cover or exclude force majeure events.