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Court forces out a force majeure clause

May 28, 2020, By

A recent High Court decision has confirmed the restrictive approach applied by the Courts when interpreting force majeure clauses.

Whether a force majeure clause is enforceable or not has become increasingly important following the outbreak of Covid-19. This is because a properly drafted force majeure clause has the potential to excuse a contracting party from liability, when it is prevented from performing some or all of its contractual obligations under the contract, due to some event beyond its reasonable control.

Facts

In 2 Entertain Video Ltd v Sony DADC Europe Ltd [2020] EWHC 972 (TCC), the Defendant sought to argue that owing to a force majeure clause in its contract , it was not liable for failing to secure its warehouse from a break-in and arson attack, which occurred during the 2011 London riots. The break-in and arson attack during the London riots had led to the destruction of the Claimant’s stock.

In order to rely on a force majeure clause, the party relying on that clause usually has to prove the following elements:

1. The occurrence of an event identified in the clause;

2. It has been prevented or hindered (as the case may be) from performing the contract by reason of that event;

3. Its non-performance was due to circumstances beyond its control; and

4. There were no reasonable steps that could have been taken to mitigate the event or its consequences.

In this case, the High Court focused on the third element and noted that although the London riots were unforeseen, the risk of intruders breaking in and the fire caused by them was not. The Judge held that these circumstances were not beyond the Defendant’s reasonable control since the Defendant had failed to secure the warehouse and ensure it had adequate fire protection. As a result, the force majeure clause did not apply to exclude the Defendant from liability.

Comment

Whether a party can rely on a force majeure clause because of the impact of Covid-19 will depend on the facts of the particular case and the terms of the contract. However, this case makes it clear that the Courts are likely to interpret these clauses strictly. Consequently, any party seeking to rely on such clauses should proceed with caution.

It also worth remembering that in order for a force majeure clause to be effective, the force majeure event has to be the sole cause of that party’s inability to perform under the contract. Effectively, this rule prevents a party blaming its failure to perform its contractual obligations on Covid-19 when there is another cause.

Finally, it should also be noted that the Courts are unlikely to allow a party to rely on a force majeure clause solely because Covid-19 has made it more expensive for it to perform its contractual duties.

Written by Ramsay Monime, Solicitor

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