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Force Majeure and You: Outrunning the Unpredictable14 January 2025

Introduction

As was amply demonstrated during the Covid 19 crisis, the recent conflict in Ukraine and numerous other unforeseen and catastrophic circumstances, international commodity supply chains are particularly susceptible to being disrupted by geopolitical events.

Connecting areas of surplus to areas of deficit, efficiently and cost-effectively, is paramount to the success of our physical commodity trading clients. Conversely, circumstances which interfere with this efficient and cost-effective movement of physical goods can prove to be extremely costly and must be carefully navigated. In this article, we discuss the concept of “force majeure”, which may operate to suspend the obligations of parties engaged in international trade, if said trade is disrupted by unforeseen and/or catastrophic circumstances.

The concept of force majeure

The concept of force majeure is well known. However, clients are often unsure of their position when making or defending a claim of force majeure because it is not a ‘term of art’, meaning the nuances of each claim depend on the express wording of the relevant force majeure provisions in the underlying contract and how the same fits the facts of the matter.

"Accordingly, when faced with a potential force majeure event, close attention must be paid to every word of the force majeure provisions in the relevant contract and, in particular, careful thought must be given to the evidentiary burden of the party seeking to rely on force majeure in proving that the event in question was causative of its inability to perform its obligations."

Accordingly, when faced with a potential force majeure event, close attention must be paid to every word of the force majeure provisions in the relevant contract and, in particular, careful thought must be given to the evidentiary burden of the party seeking to rely on force majeure in proving that the event in question was causative of its inability to perform its obligations.

The recent case below illustrates the foregoing.

PD Teesport Ltd v P&O North Sea Ferries Ltd [2023] 4 WLUK 260

This case demonstrates the approach taken by the courts of England and Wales in interpreting force majeure provisions and highlights the importance of proving a causal link between the force majeure event and the delay at hand.

Facts: A port operator applied for a summary judgment against a ferry operator for breach of contract. Under the contract, the ferry operator was entitled to use of the port in exchange for a fee and a guaranteed “minimum volume” it would transport each year. However, the ferry operator failed to meet this volume.

The ferry operator argued that it was not liable to the port operator because, amongst others, the force majeure clause in the contract had been invoked. In particular, the ferry operator sought to rely on Brexit and Covid 19 as force majeure events, despite the former not being expressly named in the force majeure clause as such.

The relevant clause in the contract provided: “If a Force Majeure event affecting [the port operator] prevents [the ferry operator] from importing or exporting Units via a Vessel…the relevant number of affected Units shall be deducted from the Minimum Volume Guarantee for the Contract Year in which the Force Majeure event occurs…”

Decision: The court granted summary judgment in favour of the port operator. In respect of the ferry operator’s (rejected) defence of force majeure, whilst the court found that Brexit fell within the wider catch-all force majeure event definition of a “circumstance beyond a party’s control”, it found that two conditions were required to be met before the force majeure clause would be engaged, which were as follows:

(i) the port operator was required to have been affected by the force majeure event; and
(ii) the force majeure event must have caused the ferry operator to be unable to transport units.

Crucially, in relation to (i), it was not sufficient for the force majeure event merely to be capable of affecting the port operator; the event had to actually affect it. However, the ferry operator had not pleaded that a force majeure event affecting the port operator was the cause of its inability to transport the minimum volume and the port operator contended that neither Covid 19 nor Brexit had affected it.

Best practice in the wording of force majeure provisions

Many force majeure disputes in recent years have concerned the impact of Covid 19. Whilst contracting parties now appear to have largely adjusted to the ‘new normal’, now frequently including pandemics or other similar language within their force majeure provisions to protect their position in the event of Covid 19-related delays, we are increasingly seeing clients facing challenges occasioned by climate change.

At present, general ‘catchall’ language such as “circumstances beyond a party’s control” (as deemed applicable in the aforementioned case to Covid 19) are likely to be found equally applicable to climate change events, such as wildfires or floods. However, as many force majeure clauses also require that the event in question be unforeseeable, there is an increasing risk that, as such climate change events become more common, said events will eventually be denied by the courts as force majeure events under general catchall language on the basis that they are, in fact, reasonably foreseeable. Seasonal flooding (and now seasonal low water) at river ports in the United States comes to mind.

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"The solution to this is for parties to expressly spell out the specific event(s) that concern them in the force majeure language of the relevant contract, particularly where such events may have an impact on their performance as regards the specific industry or transaction in question. "

The solution to this is for parties to expressly spell out the specific event(s) that concern them in the force majeure language of the relevant contract, particularly where such events may have an impact on their performance as regards the specific industry or transaction in question.

Tariffs and added economic hardship caused in the performance of a contract

It should also be noted that the courts generally refuse to hold economic hardship, or a mere increase in the cost of performing the contract, as a force majeure event in the absence of express language stating otherwise. On this basis, if we were to find ourselves in the midst of a global tariff war, as certain comments by members of the incoming US administration might suggest we could be, commodity contracts will be more economically onerous to perform, with courts and arbitral tribunals unlikely to allow parties affected thereby to be excused from performance of their obligations on account of force majeure (unless the contract includes clauses expressly permit such relief).

Making or defending a claim of force majeure

Once it has been established that the event in question is considered a “force majeure event” within the meaning of the relevant contract, the greater challenge is often proving a causal link between the event and the failure of the party seeking to rely on it to timely perform its obligations.

It is intuitive when faced with a newsworthy event, such as a wildfire, an earthquake or tsunami, that a party affected thereby will be entitled to rely on it to excuse its performance under the force majeure provisions of the relevant contract. Indeed, we have previously encountered surprise when explaining to clients that the mere fact of an event is not sufficient for them to avail themselves of the protections offered by said provisions. Instead, the party seeking to rely on force majeure must be able to prove that the event in question is the dominant and proximate cause of its inability to perform. This is not necessarily an easy task; we have seen cases fall apart due to the difficulties of compiling evidence which:

(i) proves that the inability to timely perform was occasioned by the so-called force majeure event, and not some other reason; and
(ii) further, proves that the event could not have been overcome by reasonable measures, if the language of the relevant force majeure provision requires such (as is often the case).

"Best practice, therefore, when making a claim of force majeure, is to collect evidence as soon as possible which illustrates precisely how operations have been affected by the event in question, with reference to the specific aspects of the operations so affected."

Best practice, therefore, when making a claim of force majeure, is to collect evidence as soon as possible which illustrates precisely how operations have been affected by the event in question, with reference to the specific aspects of the operations so affected (e.g. if an event has caused damage to a loading system: which precise part thereof, how this occurred, and why this could not be overcome), as well as the time the damage occurred, the expected duration until this can be rectified and expected impact on operations going forwards. It should be noted that should a dispute escalate, this evidence is likely to be subject to scrutiny by talented counsel, therefore any ‘gaps’ or inconsistencies in the same should be sought to be remedied.

Parties should be highly disciplined in the collection of evidence as to how its operations have been affected and this exercise should be undertaken with some caution. Particular care should be taken to not needlessly ‘create’ documentation for example by demanding repeated status updates and/or engaging in baseless speculation in open correspondence. Such documentation will in due course be disclosable and the contents of the same may not be helpful to the claiming party’s case. It is therefore prudent to seek legal advice at the outset, from counsel who are well-versed in the nuances of force majeure claims and can advise on the additional documentation that will be needed to support that particular claim of force majeure.

Conversely, if a party finds itself faced with a claim of force majeure, it must carefully scrutinise the evidence provided to assess whether it demonstrates that the event falls within the parameters of the relevant force majeure clause.

We run a busy practice and have vast experience advising on claims of force majeure. If you have any questions arising out of this article or require assistance with anything within the realm of force majeure, please do not hesitate to get in touch.

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