The Importance of Force Majeure Clauses in Contracts: Lessons from the Pandemic and Beyond
The COVID-19 pandemic disrupted businesses on a global scale, halting supply chains, restricting travel, and resulting in widespread furloughs. Contracts worldwide suddenly depended on force majeure clause, once overlooked as “boilerplate” provisions, to manage obligations in an unprecedented crisis entirely outside anyone’s control. For many, these clauses became essential to sustaining their operations through major challenges.
Understanding force majeure clauses and their role in contracts
A force majeure clause provides a legal safety net by specifying extraordinary events like natural disasters, or acts of terrorism that can excuse or delay contractual performance. When triggered, these clauses can relieve parties from obligations, suspend them temporarily, or allow for contract termination in certain cases. The scope of force majeure events has expanded in recent years to include pandemics and government-mandated restrictions.
Clear definitions in force majeure clauses are essential, as they help clarify when the clause applies, what actions a party must take to invoke it, and the legal consequences.
RTI Ltd v MUR Shipping BV
The recent case of RTI Ltd v MUR Shipping BV is a powerful illustration of how precise language in force majeure clauses affects their interpretation. When sanctions were imposed on Russian-owned entities, RTI, a Russian-affiliated company, could no longer pay MUR, a freight shipping company, in the contract’s specified currency, US dollars. Instead, they offered to pay in Euros. The contract’s force majeure clause referred to war as a force majeure event but also specified that an event could not qualify as force majeure if it could be “overcome by reasonable endeavours.”
During the case, RTI argued that paying in Euros and covering conversion costs would mean the force majeure event would be “overcome by reasonable endeavours”. The arbitrators appointed by the parties and the Court of Appeal agreed.
MUR argued instead that paying in US dollars was a term of the contract between the parties and forcing MUR to accept Euros instead went beyond overcoming the force majeure event by reasonable endeavours and actually required them to accept non-performance of a contractual obligation which no party is required to do without an express requirement in the contract to do so. The High Court and Supreme Court agreed with MUR. The Supreme Court’s reasoning was that contracts provide certainty by setting out specific terms, and requiring one party to accept a variation of those terms would negate this purpose unless explicitly allowed by the contract.
MUR was therefore entitled to invoke the force majeure clause and suspend services arguing that the contract could not be performed without breaching the contract. Had the contract been drafted differently MUR could not have done this.
Why a carefully drafted force majeure clause matters
The pandemic and cases like RTI v MUR show the importance of precise, tailored force majeure clauses in contracts. When drafting or reviewing these clauses, points like the below must be considered:
Clear definitions: Specify what qualifying events are and if similar events are in scope. For example including acts of God, pandemics, political events, and regulatory changes, amongst others, to provide flexibility in unforeseen circumstances.
Trigger conditions: Define the circumstances that allow the clause to be invoked, considering whether the event must make performance impossible or simply more difficult.
Notice requirements: Outline how and when a party must notify the other of an intent to invoke the clause (typically clauses require written notice within a certain timeframe of the event affecting the notifying party).
Consequences: Specify the outcomes if the clause is triggered, such as whether obligations are to be temporarily suspended or the contract can be terminated.
Mitigation efforts: Some clauses require parties to take reasonable steps to mitigate the impact of the force majeure event (to avoid its invocation where possible).
In today’s unpredictable world, force majeure clauses are essential tools. A well-drafted clause ensures that if the need arises, you’ll know exactly when and how it can protect your business.
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I’m a qualified solicitor in England and Wales. After starting my career at Panasonic and later working as legal counsel at RX, part of the FTSE 100 RELX Group, I now provide legal counsel as a service through my consultancy. With government hourly rates for lawyers of my level between £190 and £233, I offer flexible, affordable support without the need for costly billable hours.
Disclaimer
This article is provided for informational purposes only and does not constitute legal advice. The content may not be applicable to your specific circumstances or jurisdiction. For advice tailored to your situation, please consult a qualified legal professional in your area.
