Force majeure clauses have come into sharp focus recently. These clauses are intended to govern what happens if an event beyond the control of the parties affects the performance of a contract. Their purpose is to mitigate the uncertainty and unfairness associated with the doctrine of frustration (the default position under English law) and to ensure that the defaulting party is not unfairly put in a position of breach. A typical force majeure clause will define:
- the events that give rise to force majeure; the event and its impact are usually stated to be beyond the reasonable control of the party relying on the clause;
- the impact on the performance of the contract and the degree of disruption that will trigger the right to rely on the clause;
- the duties to be performed by the party seeking to rely on the clause (i.e. to give notice, to take mitigating action);
- the basis on which failure to perform will be excused; and
- what happens next (extra time for performance, suspension of performance or termination).
However, in complex contracts, it is common to find additional mechanisms to manage the impact of certain risks such as:
- price adjustment clauses
- “hardship clauses” (prompting a right to adapt the contract or to terminate it)
- the right to adopt a different specification
- the right to seek an alternative supplier
- “step in”; or
- business continuity and recovery provisions.
Therefore, before relying on a force majeure clause, it is important to consider the impact of these extra mechanisms. Have the parties foreseen the problem? Have they already accepted that performance can be different to what was contracted for? Have they agreed to tolerate a degradation in performance and, if so, for how long?
If the parties have already anticipated the impact of a certain risk (and modified the standard of performance to create a new solution), force majeure may not be available.
Therefore, when drafting a complex contract, it is usually helpful to link the force majeure clause to any other mitigating contractual mechanisms. It is also helpful to define the minimum performance required throughout the contract, even if the parties intend to take some other short-term mitigating action to address problems.