Dispute resolution

Can you rely on the force majeure clause in your contract?

Published on 21st Jul 2022

Both the coronavirus pandemic and the war in Ukraine are events which could fall within the scope of a force majeure (FM) clause in a commercial contract. However, as a recent case demonstrates, it can be hard to rely on FM clauses in practice. That is because often a failure to perform a contractual obligation is really due to a commercial decision rather than events outside of the party's control (as is usually required by FM clauses).

In NKD Maritime Ltd v Bart Maritime (No. 2), the claimant buyer sought to rely on a FM clause in its contract with the defendant seller in order to terminate the contract. The defendant denied that the clause applied.

The clause in question provided that if the seller was "unable" to transfer title (or the buyer was "unable" to accept transfer of the vessel) "due to…restraint of governments…then either the Buyer or Seller may terminate this Agreement...without any liability upon either party".

Butcher J found that a lockdown imposed by the Indian authorities (which ran for three weeks from 25 March 2020) because of Covid-19 had not (on the facts) led to an inability to perform the parties' obligations.

If he was wrong on that point, though, he accepted that the effect of the lockdown would have been to have prevented transfer of title by the date when either party had the option to cancel the contract (14 April 2020). However, the judge believed that transfer could have taken place a couple of weeks later.

The judge accepted that a FM clause that refers to "inability" is significantly different from one that refers to only hindrance: "I also accept that inability is not to be judged simply by reference to whether there was inability to perform by the contractual cancellation date", otherwise very short-lived and transient hindrances to performance might satisfy the clause.

Instead the test was "whether the probable period of that restraint is such as materially to undermine the commercial adventure".

Here, it had been clear to the parties that there might be some delays in performing the contract and it was also clear that the lockdown measures would be eased fairly quickly. Accordingly, there had been no "inability" within the meaning of the clause.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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