Developments in contract: Force majeure

Principles

• Force majeure clauses are common in commercial agreements and seek to excuse a party from a failure to perform its obligations under a contract where a pre-agreed event has interfered with performance.
• The effectiveness of force majeure provisions depends upon their drafting - parties often seek to enhance them by, for example, including notification requirements, or requirements to mitigate the effect of the force majeure event.
• The party relying on the force majeure clause must establish a causal link between the event and its inability to perform its obligations.

Recent developments

• In 2 Entertain Video Ltd v Sony DADC Europe Ltd approximately £40 million of 2EV’s goods were housed in storage facilities provided by Sony under a storage agreement. The force majeure clause in the storage agreement excused a failure or delay in performance caused by “circumstances beyond the reasonable control of the party affected including but not limited to […] riot”.
• The London riots of 2011 resulted in a break in and fire in the storage facilities destroying 2EV’s goods. The High Court rejected Sony’s argument that the circumstances amounted to force majeure under the storage agreement.
• Although it was common ground that the riots were unforeseen, the risk of intruders, the risk of arson and the risk of destruction of stock by fire were, or should have been, foreseen. Further, Sony could have taken adequate security measures and fire precautions to significantly reduce any such risk and resulting damage.
• The fire and resulting loss did not, therefore, amount to circumstances “beyond the reasonable control” of Sony and did not fall within the force majeure clause.

What this means

• Not all force majeure clauses will require that events are unforeseeable, or outside the reasonable control of a party. However, many will have similar requirements and where they do, parties should carefully consider the wording of the specific clause.
• The fact that a specific event is referred to in the force majeure clause may not be sufficient. Parties must consider whether the resulting circumstances, and any loss flowing therefrom, fall within the terms of the clause.
• For further information on the case, including the Court’s findings as to consequential loss see this article.