Force Majeure

A force majeure event refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract. English common law has no general concept of force majeure (save for the limited doctrine of contractual frustration, which is addressed below). A party’s ability to claim relief for a force majeure event therefore depends upon the terms of the contract, and the force majeure provision in particular. Force majeure provisions are express terms and will not ordinarily be implied into contracts governed by English law. The “test” for force majeure usually requires the satisfaction of three distinct criteria: (1) the event must be beyond the reasonable control of the affected party; (2) the affected party’s ability to perform its obligations under the contract must have been prevented, impeded or hindered by the event; and (3) the affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences.

A party affected by such an event of force majeure will typically be relieved from performing the obligation affected for the duration and to the extent affected and may be entitled to compensation. As with all matters dependent upon the terms of the contract, each force majeure provision must necessarily be considered on its precise terms and in its specific context. Significantly, although the economic downturn and government regulations have affected business, this is not necessarily enough to excuse nonperformance. In fact, economic factors, although seemingly unpredictable, are an inherent part of all sophisticated business transactions and could therefore be viewed as foreseeable. Typically, a party will need to demonstrate something more to avoid contractual obligations.

If force majeure is not applicable to your situation, one may seek to excuse nonperformance under the doctrine of impossibility of performance or frustration of purpose. Impossibility occurs when: (1) the contract does not expressly allocate the risk of the event’s occurrence to either part; and (2) to excuse the party who is unable to perform would comport with customary risk allocation. Frustration of purpose focuses on events that materially affect the consideration received by one party for its performance. Both parties can perform, however, as a result of unforeseeable events, performance by one of the parties would no longer give the other party what had induced that party to make the bargain in the first place. Performance can be excused when a catastrophic and unforeseen event renders the contract valueless to one party. Should you desire, we are available and prepared to review and evaluate these options for all of our clients.