FORCE MAJEURE Hiding Behind Non Performance

Jonathan Moss Partner DWF Fishburns

SUMMARY OF TOPICS TO BE COVERED

What is Force Majeure? Force Majeure versus Frustration A review of recent catastrophes and their impact on performance of contracts (effect, operation, reality) Drafting tips, sample clauses What to include in a Force Majeure notice What to include in a response to a Force Majeure notice
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INTRODUCTION TO FORCE MAJEURE

Force Majeure - The means by which contracting parties can avoid being tied into the obligations created by a contract Force Majeure is an event which (i) is beyond the control of the parties and (ii) prevents, impedes, or delays the performance of a contract The event must be unforeseeable, unpreventable (by the parties) and external Operates to suspend or terminate the contract on terms agreed between the parties A carefully drafted force majeure clause will always be clearer, more certain and more satisfactory than relying on general principles of law
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FORCE MAJEURE V FRUSTRATION

Force Majeure Advantages Certainty Frustration - Disadvantages English Courts reluctant to find that an international trade contract has been frustrated Does not always need to bring a contract to Requirement for impossibility to perform the an end contract; complete destruction of the object of the contract Temporary suspension or permanent Only applies in extremis suspension subject to agreement or seek an extension of time for performance Negotiated terms of operation agreed by all parties Event does not have to be unforeseen if agreed (unlike frustration) Will bring a contract to an end Includes cessation of all future obligations

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DRAFTING CONSIDERATIONS
Description of the events that will trigger the operation of the clause Terms that define the duration of the condition
Notice provision describing how a declaration of Force Majeure is to be communicated The consequences of a Force Majeure occurrence i.e. defences/remedies available to the parties
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DEFINING FORCE MAJEURE EVENTS

Acts of God, earthquake, flood, fire, storm, epidemic War Revolution, rebellion, civil commotion, riot Strike

Depletion, reduction or insufficiency of reserves

Rupture or explosion Laws, regulations and any acts of any state

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PRACTICAL EXAMPLES COUNTRY TO COUNTRY HIDING BEHIND NONPERFORMANCE

Annus Horribilis
During the course of 2011, natural disasters are estimated to have claimed the lives of over 30,000 people across the globe and cost the worldwide economy a record of $350 billion

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JAPAN
Tsunami in March 2011: 16,000 lives lost and costs in the region of $210 billion making it the most costly natural disaster ever recorded Proliferation of disputes regarding Force Majeure Consider the nature of the transaction in issue

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VIOLENCE, RIOTS AND CIVIL COMMOTION - EGYPT

Egypt bore witness to violence, riots and civil commotion from January to June 2011 Contracting parties were unable to present documents under letters of credit involving banks based in Egypt and used this as an excuse for non-performance When the banks are still open for business there is no difficulty

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FLOODS - THAILAND 2011/2012

Thailand suffered its worst floods in 50 years in 2011. 800 lives lost, 660,000 workers, 10,000 factories and 7 large industrial estates affected Thailand issues: Were the floods truly unforeseeable and unpreventable natural disasters or were they foreseeable (or even foreseen) and capable of being prevented or at least mitigated in advance? Were the floods caused or aggravated by official actions?

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CHECK LIST IN THE EVENT OF POTENTIAL FORCE MAJEURE

Follow events as closely as possible on the ground and liaise with counter-parties Check sales contracts for Force Majeure provisions, notices, payments, procedural obligations Talk to your counter-party (consider diverting vessels to alternative ports)

Notices sent to the broker or agent may be valid notice

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POINTS TO INCLUDE IN A FORCE MAJEURE DECLARATION

The parties should specify in the notice what their rights and obligations are on the happening of a Force Majeure event. These could be: Right to terminate without liability on either side Suspension of performance until the Force Majeure event ceases without liability

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RESPONDING TO A SIMPLE FORCE MAJEURE DECLARATION The non-claiming party should respond with a request for reasonable details of the force majeure event (Request for Further Information): Actual details of the FM event Its impact on contractual performance The expected duration of the FM events Efforts being undertaken by the claiming party to remedy the FM event or avoid its effects
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CONCLUSION
Force Majeure event is unforeseeable, unpreventable (by the parties) and external The ability to declare a Force Majeure Notice depends on the definition of the goods/products and the specific description of the Force Majeure events in the contract The Force Majeure clause must define i. The events which will trigger the operation of the clause ii. The impact those events will have on the party who invokes the clause iii. And the effect invocation will have on the contractual obligations
Private & Confidential. Not for distribution. DWF LLP 2012 www.dwf.co.uk

FORCE MAJEURE Hiding Behind Non Performance

Jonathan Moss

Partner
DWF Fishburns