Force Majeure


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Presented by Stephen Wyer, George Green LLP

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Force Majeure

  1. 1. Force Majeure Presented by Stephen Wyer, George Green LLP Head Office 195 High Street, Cradley Heath, West Midlands, B64 5HW Tel: (01384) 410410 Fax: (01384) 820065 DX: 20752 CRADLEY HEATH Birmingham Office 43 Temple Row, Birmingham B2 5LS Tel: (0121) 698 8532
  2. 2. FORCE MAJEURE <ul><li>Unexpected events affect business arrangements. </li></ul><ul><li>Recent examples: </li></ul><ul><li>Natural disasters and nuclear emergency in Japan (2011), eruption of Icelandic Volcano (2010). </li></ul> FORCE MAJEURE
  3. 3. FORCE MAJEURE <ul><li>What is force majeure? </li></ul><ul><li>A way of providing for the occurrence of natural disasters and other unexpected events and the effect they have on performance of commercial agreements. </li></ul><ul><li>Excuses a party from (or entitles it to suspend) performance of contract if an unexpected event occurs or if circumstances prevail that are outside the party’s control (force majeure). </li></ul> FORCE MAJEURE
  4. 4. FORCE MAJEURE <ul><li>Most well drafted commercial contracts contain a force majeure clause. </li></ul><ul><li>This sets out the extent to which performance of obligations is excused if a force majeure event occurs. </li></ul><ul><li>Without a force majeure clause parties must rely on legal doctrine of frustration but this only applies in very limited circumstances. </li></ul> FORCE MAJEURE
  5. 5. FORCE MAJEURE <ul><li>Factors to consider: </li></ul><ul><li>Your role under the contract. </li></ul><ul><li>Circumstances most relevant to the contract. </li></ul><ul><li>Particular Risks. </li></ul> FORCE MAJEURE
  6. 6. FORCE MAJEURE <ul><li>If you are the party likely to rely on the force majeure clause you will want definition of force majeure event to be as wide as possible. </li></ul><ul><li>If you are less likely to rely on the force majeure clause you will want to keep to a minimum the circumstances where the other party is excused from obligations. </li></ul> FORCE MAJEURE
  7. 7. FORCE MAJEURE <ul><li>Force majeure clause must clearly define “force majeure event”. </li></ul><ul><li>“ Usual force majeure”, or similar, will not be sufficient. </li></ul><ul><li>Trying to list all possible events will be cumbersome and lengthy, may miss something and may imply that an event not expressly mentioned is excluded. </li></ul> FORCE MAJEURE
  8. 8. FORCE MAJEURE <ul><li>Best approach to drafting force majeure clause: </li></ul><ul><li>Express mention of circumstances most likely to be directly relevant. </li></ul><ul><li>“ Sweep-up” language to deal with events not expressly referred to. To be done with caution – avoid situation where general word is deemed to be qualified by preceding words with more distinct meaning. </li></ul><ul><li>Expressly exclude any event that is definitely not to be force majeure. </li></ul> FORCE MAJEURE
  9. 9. FORCE MAJEURE <ul><li>Changes in economic or market circumstances affecting the profitability of a contract or the ease with which obligations can be performed will not be force majeure unless your contract says so expressly. </li></ul><ul><li>Force majeure can be relied on in relation to an event existing at the date of contract (unless force majeure clause states otherwise). </li></ul> FORCE MAJEURE
  10. 10. FORCE MAJEURE <ul><li>Force majeure clause usually suspends obligations whilst a force majeure event continues. </li></ul><ul><li>Contract is ‘reactivated’ if force majeure event comes to an end. </li></ul><ul><li>Parties may be allowed to terminate contract if force majeure event continues for an extensive period. </li></ul> FORCE MAJEURE
  11. 11. FORCE MAJEURE <ul><li>Force majeure clause may require parties to serve notice and commit to take all possible steps to avoid force majeure event and its consequences, before contractual obligations are released. </li></ul><ul><li>If you wish to rely on a force majeure clause the onus is on you to show that it applies. </li></ul><ul><li>You must also take steps to reduce the effects of the force majeure event (or take steps to avoid it altogether, if you have agreed that force majeure events are matters “beyond your control”). </li></ul> FORCE MAJEURE
  12. 12. FORCE MAJEURE <ul><li>Force majeure clause = safety net only, impossible to guarantee it will cover each and every occasion. </li></ul><ul><li>May only rely on a force majeure clause if it is reasonable in the circumstances. </li></ul> FORCE MAJEURE
  13. 13. FORCE MAJEURE Force majeure clauses are more than boilerplate. Consider carefully! We can help! Call Stephen Wyer on 01384 340513 or e-mail [email_address] . Thank you!