BUSINESS
The importance of a good ‘force majeure’ clause
When including an FM clause, it should enable the business to invoke a rights of suspension and/or termination of its duties and obligations under the contract. The inclusion of the words ‘epidemic’ and/
or ‘pandemic’ in the clause may be sufficient to trigger FM. Where these terms have not been included, the emergency measures to address or contain any outbreak, like a travel ban or quarantine zones, may be sufficient to trigger FM. If a business seeks to invoke an FM clause, it must show that any failure to perform its contractual obligations cannot be attributed to other factors, such as any additional cost of performance. Any FM clause cannot be taken in isolation,
but interact appropriately with the other terms of the contract, such as any obligation to mitigate loss, and the procedure to notify the other party.
Key actions for businesses in 2021 The first step for businesses is to review existing terms and conditions of supply and purchase, scrutinising all new contract terms to see if FM is included within the contract. What is included as an FM event and what steps must be followed if businesses are relying on it? You should also consider what effort to perform/minimise loss will be required on the part of your business or your supplier. Finally, consider the overall impact on the contract as a consequence of FM being triggered, like termination rights. Then check your insurance position regarding a supplier invoking an FM clause or you having to, hoping to protect your business. Remember, if a contract does not include
an FM clause, it may in limited circumstances be possible to seek redress on the basis of frustration, but this is a complex legal matter with very strict requirements to be met. In English law, the concept of frustration is that contract obligations may be discharged in their entirety if an event has occurred, without the fault of either party, that renders it physically or commercially impossible to fulfil the contract. Such an event might also transform the obligation to perform into a radically different obligation from that agreed when the contract was signed, again allowing the obligation in the original contract to be discharged.
However, it’s worth remembering the threshold for showing a contract is frustrated, is generally extremely high.
Force majeure clause is not a magic bullet To successfully minimise potential loss in FM scenarios, it is vital to offer a prompt, contractually compliant notice to the other party, detailing potential disruptions to performance, as this will give them the chance to act appropriately to mitigate loss or damage. Business must also consider any alternative way of performing the contractual obligations, instead of leaving their client to deal with the problem – this will protect the long-term relationship and any future collaboration. Retaining written evidence of any disruption
is essential, as either party may wish to take matters further, once the contract to supply has been terminated or suspended. Whilst we await the outcome of Covid-19 FM claims, there is plenty for businesses to consider, from checking contract clauses cover all possible eventualities to checking they have adequate insurance cover, but a review of standard contract terms and conditions is a crucial first step.
https://taylorwalton.com/
www.acr-news.com
February 2021
15
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