In the face of widespread price rises, force majeure issues have returned to the centre of people’s minds ~ can a supplier, who has difficulties fulfilling their contractual obligations due to a cost rise, invoke a force majeure clause and simply walk away from a supply contract without penalty?
If your supplier is having this issue and has indicated that they need to raise the contract price, or alternatively terminate the contract relying on the force majeure clause, here are some tips that you can apply to protect yourself.
A force majeure clause provides a remedy for the contractual party who fails to fulfil their obligations under the contract due to the impact of force majeure events. However, they should ask the following questions before the force majeure clause can be invoked and relied upon.
Is there a force majeure clause in the contract?
Force majeure is not a legal concept under the English law, so one can only rely on it if the clause is included in the contract.
Is there a force majeure event?
The force majeure clause can only be invoked if the specific event is deemed a ‘force majeure event’ – examples are natural disasters or an outbreak of hostilities. As a general rule, force majeure clauses are interpreted restrictively. So, the careful and precise wording of the force majeure clause is very important.
What is the force majeure event impact?
This is identifying the specific liability where the impacted party or the supplier has been affected. It is possible that there are several obligations under the contract and the event hasn’t impacted all of those obligations. These may include the obligation to supply goods continuously; only when that obligation has been affected can the supplier attempt to trigger the force majeure clause.
What type of impact?
The impact may have different effects but only when the force majeure event has made it impossible for the supplier to continuously supply goods can they invoke the force majeure clause. Importantly, if the impact has merely made it more expensive for the supplier to supply goods, the force majeure clause is unlikely to be effective.
Causation or a direct link
The supplier needs to establish a direct link between the event and the impediment to performance before they can trigger the force majeure clause. You might ask whether a specific event made it impossible for the supplier to meet their obligations – for example, during lock-down, was it the pandemic or the lockdown restriction that caused suppliers to fail to meet their obligations?
Has the impacted party taken the right actions properly?
If the force majeure clause has been triggered, the impacted party needs to notify the other party of their inability to meet their obligations promptly, otherwise they might miss their chance and end up being required to pay for breach of the contract. The enforcement of the clause will not happen automatically.