Force Majeure: What the Court has said since the start of COVID-19

Throughout the pandemic in 2020, many contracts have come under pressure and parties have had to consider whether their obligations have been suspended by Force Majeure. As claims take a long time to get to court it may be some time before any big force majeure claims arising from the pandemic result in a noteworthy judgment. However, applications (such as for an injunction or summary judgment) get to court more quickly, and some of these have recently resulted in judgments. Here is a short summary of key points that have arisen in judgments considering force majeure since the start of the pandemic.

Limbungan (March 2020)

• This was the last in a series of cases between the relevant parties but it reiterated two key findings both of which are a salutary reminder to read clauses carefully before taking action.

• The Court said that each force majeure-type clause should be considered on its own words and in the relevant surrounding circumstances. Decisions in previous cases were of limited assistance, even if they involved similar clause wording.

• A force majeure-type clause may in fact be an ‘exclusion clause’, as was the case here. This may have the result that the party seeking to rely on the clause (to excuse their non-performance) must show they would have performed ‘but for’ the breach. In this case, the Defendant could not show it would have been able to perform, in fact it was clear it would not have done so for other reasons, therefore it could not rely on the clause to excuse its non-performance.

• This is one reason, although certainly not the only reason, to keep records and evidence required to prove both that performance would have been possible and why it has become impossible (or more difficult, depending on the threshold set by the clause).

Fibula Air Travel (October 2020)

• This was an interim application in which the judge only had to decide whether certain force majeure arguments were ‘arguable’ rather than correct. Again, the conclusion stresses the need for careful consideration of the exact wording of both the force majeure clause and rest of the contract, including in this case the payment obligations.

• What was ‘strongly arguable’ in this case, was that where a force majeure clause allowed termination if performance had remained impossible for more than 10 days, but an instalment payment was due in 5 days, that instalment would be payable. It was strongly arguable that the party relying on the force majeure clause could not avoid that payment by terminating early, even if it was clear that the force majeure event would persist for 10 days.

New Stream Trading (March 2020 and November 2020)

• Two different cases with two claimants succeeding in obtaining summary judgment. In both cases the defendant (New Stream) attempted some inventive force majeure arguments to avoid repaying advanced payments for goods it had not delivered by the point of termination of the contract.

• In the first claim, the Court found that when construing the force majeure and payment obligations together it was clear the advanced payments were repayable. In the second claim, the contract was not so clear. However, it appears that the court concluded the parties must have intended the advanced sums to be repayable in such cases, and so found that such a term was implied into the contract.

• On the terms of the contract, although the advanced sums were repayable, certain interest on these sums was not payable, at least for so long as the force majeure event might have persisted. This provides another example of the need to read the whole contract carefully, not just the force majeure clause.

• Last but by no means least, a party who purports to terminate a contract by asserting that a force majeure event has existed for the required period of time, if they are wrong about that, may be in breach of contract, and that breach may be serious enough as to give the other party the right to terminate the contract and claim damages from the party wrongly relying on force majeure. This might be done on the basis of what is called ‘repudiatory breach’. This is a complex area of law with potentially large ramifications for the parties, so must be carefully considered.

Navigating Distressed Contracts

To help organisations navigate force majeure clauses for themselves, and consider other options that might be available to them when trying to manage distressed contracts, Burges Salmon has developed a ‘Distressed Contracts Toolkit’ App. If you would be interested in trialling or using the App please do get in touch with your usual Burges Salmon contact.