Under English law, if a contract becomes impossible to perform, or is only able to be performed in a manner substantially different from that envisaged by the Parties at the outset, then the doctrine of “frustration” may apply and the contract terminate. This may not be in the interests of either of the Parties who may wish the contract to be suspended rather than terminated, for the duration of the frustrating event, or for a specific period.
In certain continental jurisdictions, where delay in or failure to perform a contract by a Party for reasons beyond its control occurs, then the doctrine of “force majeure” may apply. This generally results in suspension of contractual obligations.
The Parties may wish to agree during the contract negotiation the position under the contract in such circumstances. Here it’s important to ensure that the position only applies if performance is delayed or prevented due to circumstances beyond the reasonable control of the party seeking relief.
When agreeing “force majeure” provisions the Parties should agree the consequences of the force majeure circumstance – for example:
- the extent of the liability of the Party claiming force majeure;
- whether the contract is to be terminated and, if so, the impact on the respective rights and obligations of the Parties;
- whether there’s to be an extension of the time for performance of the contract obligations as originally envisaged, or whether they are to be varied;
- whether in the event of an extension of the time for performance of the original obligations, the extension is to be open ended, or subject to a specific period before those obligations are waived, or the contract comes to an end;
- whether any sums under the contract should be paid immediately, or whether sums paid prior to the force majeure event should be repaid.
In considering force majeure provisions the Parties may wish to be more specific than simply referring to “circumstances beyond the control” of a Party to avoid debate regarding what circumstances are in fact beyond the control of the party claiming relief; the usual matters which the Parties might define as being events of force majeure are:
- Act of God including tempest, fire, or natural disaster;
- War, civil war, sabotage or act of terrorism;
- Government sanction, embargo, import or export regulation or order;
- Labour disputes, including strikes, lockouts, boycotts or other industrial action (but usually strikes of the labour force of the party claiming force majeure are expressly excluded);
- Failure in the transportation of equipment, machinery or personnel or in the provision of any utility including power, gas, water, or communication services;
In order to avoid failure to specify a particular event of force majeure, it’s usual to include the general sweep-up proviso “or any event or circumstance beyond the reasonable control of a Party”.