Force Majeure: Common Law Or Contractual Clause?

Force majeure, meaning superior force in French, is a term used in common law to refer to clauses that relieve a party from performing its contractual obligations when impacted by an external event outside of their control, such as natural disasters, wars, or pandemics. While there is no doctrine of force majeure in common law, it is a useful label that provides flexibility for contracting parties to decide the terms of their contract. The interpretation of force majeure clauses can vary depending on the governing law of the contract, with common law jurisdictions taking a broader approach. These clauses are crucial in commercial contracts, especially during unprecedented events, as they allow parties to allocate risk and protect themselves from unforeseen circumstances that may render contract performance impossible.

Force majeure is a creature of contract

In common law jurisdictions, force majeure is a creature of contract, meaning that the doctrine cannot be invoked without an express provision authorising the parties to do so. The doctrine of force majeure has its origins in French civil law, but it is not recognised under common law. Instead, the term is used as a label for clauses that relieve a party from contractual obligations when impacted by events outside their control, such as natural disasters or wars.

The scope and effect of force majeure clauses depend on the specific language used in the contract and the governing law. While civil law jurisdictions interpret force majeure narrowly, common law jurisdictions take a broader approach. When drafting force majeure clauses, it is crucial to consider the relevant national law and define what events will be considered force majeure. These events should be specified in the contract to avoid ambiguity. Examples include natural disasters, wars, epidemics, pandemics, labour strikes, and acts of terrorism.

The inclusion of a force majeure clause in a contract is common practice to address changes in circumstances during the contract term. Without such a clause, there are limited circumstances in which the law will intervene to relieve a party from performing its contractual obligations due to external events. One exception is the doctrine of frustration, where obligations are relieved if the contract is considered frustrated. However, this doctrine has limited application.

The absence of a force majeure clause may lead to arguments about the applicability of other common law doctrines, such as impossibility and frustration of purpose. The doctrine of impossibility is triggered when an unforeseeable event destroys the subject matter of the contract, while frustration of purpose occurs when a party's principal purpose is substantially frustrated by an event, even if performance remains possible. When considering these doctrines, courts examine the contract's language to assess whether the event justifies a common-law excuse.

Doctrine of frustration

The doctrine of frustration is a common law principle that applies when an unforeseeable event occurs, making it impossible to perform obligations under a contract or radically altering the nature of those obligations. This doctrine recognises that an event can occur through no fault of either party, and it serves as a defence to the enforceability of a contract.

The doctrine of frustration is often considered in relation to force majeure clauses, which are contractual provisions that outline the procedures and remedies in the event of unforeseen circumstances. If a contract includes a force majeure clause, the courts will typically rely on this provision rather than the doctrine of frustration. However, if a contract does not contain such a clause, a party may still be released from certain contractual obligations if they can prove that the contract has been thwarted due to unforeseen events.

The doctrine of frustration is based on the allocation of risk of unforeseen events. It is important to note that the doctrine does not render a contract void from the outset; instead, it releases both parties from their obligations from the point of the frustrating event onwards. The doctrine is often seen as a "nuclear option" and an extreme measure for extreme events, as it requires that the purpose of the contract has substantially differed from the original intention of the parties.

The Law Reform (Frustrated Contracts) Act 1943 addresses the effects of frustration on a contract. Under this legislation, money paid before a frustrating event can be recovered, and money due before the event but not paid is no longer payable. Additionally, if expenses have been incurred, one may be allowed to retain an amount up to the value of those expenses out of the money paid before frustration, subject to the court's discretion.

The doctrine of frustration has been the subject of various legal cases, including the UK Davis Contractors (1956) and the Australian Codelfa (1982) cases, which are often used as references for understanding the nature of the doctrine and its remedial aspects. Despite its existence in common law, there is a perception that the doctrine is rarely successful as a means of discharging a party's performance under a contract.

Doctrine of impossibility

The term "force majeure" (literally meaning "superior force") has its origins in French civil law. Under common law, there is no doctrine of force majeure. Instead, the term is a convenient "label" used to refer to clauses that relieve a party from performing its contractual obligations when impacted by events outside its control, such as natural disasters or wars.

The Doctrine of Impossibility, as articulated in Section 56 of the Indian Contract Act, 1872, addresses situations where a contract becomes void due to the impossibility of performance. This doctrine is closely related to the concept of frustration of contract, which occurs when unforeseen events render the fulfillment of contractual obligations impossible. An agreement to perform an act that is impossible in itself is void. The Supreme Court in Satyabrata Ghose v. Mugneeram Bangur and Co. emphasized that the term impossible should be interpreted in a practical sense, allowing for a broader application of the doctrine. Courts have held that the doctrine applies to both physical impossibility and situations where contract performance is rendered impractical due to changed circumstances.

The doctrine of impossibility excuses performance of a contract when an unforeseeable event destroys the subject matter of the contract. It is a common law alternative and is not available when the contract contains an express force majeure clause. Historically, courts have rarely applied this doctrine, generally recognizing only ""acts of God or law" as a basis for invoking it. However, there is some precedent for government orders qualifying as an "act of God or law".

The doctrine does not apply if the impossibility arises from the actions or choices of the parties involved. For example, if a party fails to fulfill a contractual obligation due to their own default, they cannot claim frustration. Courts are cautious in applying the doctrine, ensuring it does not become a means for parties to escape their contractual obligations without valid grounds.

When determining whether the doctrine of impossibility may be available, it is important to consider the facts and circumstances at the time of contract execution and review the specific terms to see if the risk of an unexpected event was assumed by either party. The availability of this doctrine may also depend on the type of contract, as specific rules apply to certain types, such as contracts for goods and services, employment agreements, and real estate contracts.

Common law jurisdictions take a broader approach

While civil law jurisdictions interpret force majeure narrowly, common law jurisdictions take a broader approach. In common law jurisdictions, force majeure is a creature of contract, meaning that the doctrine cannot be invoked without an express provision authorising the parties to do so. This means that the scope and effect of force majeure clauses are generally determined by the specific language used in the contract.

The specific language used will be critical to determining the scope and applicability of force majeure clauses. Commercial contracts often include an "'act of God' among the circumstances that would trigger a contract's force majeure clause. The inclusion of a "pandemic" or an "epidemic" among the specified circumstances is less common. In the case of the COVID-19 pandemic, for example, a force majeure certificate issued by a government authority may be useful evidence that a force majeure event has taken place, but it is unlikely to be sufficient to invoke the application of the force majeure clause unless the clause expressly refers to the issue of such a certificate as a trigger.

When including a force majeure clause in a contract, it is crucial to draft it effectively to ensure that it can be relied upon in the event of a force majeure event. The clause must be clear and unambiguous, specifying the force majeure events that can trigger the clause. The clause should state that the force majeure event must make it impossible or significantly more difficult to perform the obligations under the contract.

It is also important to note that not all unforeseeable events will be considered force majeure. For example, a contract becoming uneconomic to perform does not amount to an event of force majeure.

Force majeure certificates

In some countries, such as China, government authorities issue force majeure certificates in cases of broad impact, such as the COVID-19 outbreak. These certificates may serve as useful evidence of a force majeure event in common law contexts, but they are unlikely to be sufficient to invoke a force majeure clause unless explicitly stated.

Chambers of commerce in various regions, including Lithuania and the UK, also issue force majeure certificates. These certificates attest to the existence of force majeure circumstances and are issued to legal entities conducting commercial and economic activities. The process typically involves submitting an application with supporting documentation to the chamber of commerce, which then reviews and issues the certificate if the force majeure circumstances are proven.

It is important to note that the interpretation of force majeure clauses can vary depending on the governing law of the contract. While civil law jurisdictions interpret force majeure narrowly, common law jurisdictions take a broader approach. Therefore, it is crucial to draft force majeure clauses effectively, specifying the events that trigger the clause and its impact on the contract.

In the absence of a force majeure clause in a contract, parties may explore alternative doctrines, such as the doctrine of frustration, which allows for the termination of contracts if certain conditions are met.

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