Contractual risk: Practical tips for invoking force majeure
If a force majeure event arises due to Covid-19, it is critical that the party intending to rely on force majeure complies strictly with the notice requirements in the contract.
If it does not do so, the party serving the notice runs a very real risk of the notice not being valid and so not being entitled to rely on force majeure and accordingly of being liable for damages for its failure to perform obligations it was, in fact, prevented from performing as a result of Covid-19 – unless it can rely on other contractual or common law rights to excuse such failure.
The courts have traditionally interpreted notice clauses very strictly and it would not be prudent to rely on the court taking a more lenient approach to notices served during Covid-19.
By way of example, in a memorable phrase Lord Hoffman stated in Mannai Investment Co Limited v Eagle Star Life Assurance Co Limited (1997) AC 749 that ‘if the .. notice clause had said that the notice had to be on blue paper it would have been no good serving it on pink paper.”
Therefore, a party wishing to rely on force majeure should check not only if there are any specific notice requirements in the force majeure clause itself but also if there are any other notice provisions elsewhere in the contract and comply exactly with those provisions.
A force majeure clause usually requires the party claiming to be affected by the force majeure event to:
- notify the other party of the event, the obligations whose performance is affected by the event, and the expected duration of the event;
- take all reasonable steps to mitigate the impact of the force majeure event eg re-performing an affected obligation.
If the clause requires a party to give reasonable details of the effects of the force majeure event, recent cases suggest that quite a lot of detail is required for the notice to a valid. So, err on the side of completeness. Doing that may also give the party serving the notice confidence that it is entitled to rely on the force majeure clause.
A standard notice clause usually requires the party serving the notice to serve it:
- By the prescribed method or methods;
- On specific named or types of persons; and
- At a specific physical or email address.
If, for whatever reason, it is not possible or reasonably practicable to comply with any of those requirements because of Covid-19, a change to them should be agreed (in accordance with any variation clause in the contract) in advance with the other .
A party wishing to rely on a force majeure clause should also bear in mind, before serving a notice, that it must be able to prove that:
- the alleged force majeure event was what has prevented or delayed its performance;
- the event – and its impact on contract performance – was beyond its (reasonable) control. The party relying on the clause must be able to show that even if it had done all that was reasonably to be expected of someone in its position (eg alternative supply arrangements, backups, implementing business continuity plans), it would still have been affected in this way;
- performance became physically or legally impossible, not merely more difficult or unprofitable, if the contract specifies performance must have been “prevented” by the force majeure event; and
- the force majeure event was the sole cause of the failure to perform, if the contract so proves (which it usually will).
A party should bear those things in mind not only to satisfy itself that it is confident that it will be able to rely on the force majeure clause, but also so that it is prepared if and when the party on whom the notice is served asks for proof that the alleged force majeure event is what has prevented or delayed the performance.
It is also important to serve the notice as soon as possible as the force majeure clause may, upon its terms, operate to excuse a party from performance during the period of the force majeure event only after the notice has been given, as opposed to relieving it of liability for a breach which pre-dated the notice even if that was also caused by the force majeure event.
Find all our Covid-19 related advice here.
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