Severe Weather Approaching – the importance of a good force majeure clause
Storm season has well and truly arrived with Ireland having already been hit with multiple storms, including three storms within one week. Storm Ali in particular arrived with a vengeance, bringing with it tragedy and disruption to the country. Recently we saw weather warnings being issued in contemplation of Storm Callum, with such warnings contemplating disruption to travel, schools and potential work attendance.
It cannot be forgotten that in the last twelve months, two red alert weather warnings were put in place bringing the country to a halt on both occasions, firstly for Storm Ophelia and then for Storm Emma. It is difficult to deny that weather systems such as these are becoming more prevalent and are something that we will need to consider in many respects going forward.
Businesses to be Aware
One area businesses should consider in light of the more frequent severe weather systems is how severe weather and weather alerts can impact upon their contractual obligations and commitments. This is where a good force majeure clause becomes more and more important.
A force majeure clause is a clause in a contract that allows a party to suspend or terminate the performance of its obligations under certain circumstances beyond its control, where those circumstances make such performance impossible or in some cases illegal. The absence of a force majeure clause leaves parties (1) at the mercy of the common law contract doctrine of ‘frustration’ or (2) deemed to have ‘breached’ the contract.
The doctrine of frustration sets out that a contract is frustrated where its performance becomes physically or legally impossible. The contract, if found to be frustrated, will end and the parties may be entitled to remedies if the end of the contract causes a loss. However, seeking to claim that a contract has been frustrated is difficult to prove, expensive and puts contract parties in a less than ideal situation.
Instead of relying on such common law principles, it is advisable for businesses to negotiate a good force majeure clause at the time of the creation of the contract to anticipate and deal with a situation that may arise which could create problems in performing the contract.
What is a Force Majeure Event?
A force majeure event can often be referred to as an ‘Act of God’. Such events can include natural disasters such as hurricanes, floods, earthquakes or other weather disturbances. It can also include war, acts of terrorism, labour strike disruption or disease outbreaks in certain circumstances.
In the last twelve months, Ireland has been hit by two weather events which may well have qualified as force majeure events. On both occasions status red alerts were issued by Met Eireann and the public was advised to remain indoors at all times and only to travel in an emergency. The country ground to a halt and businesses had no choice but to shut their doors and send staff home.
However, in cases of contracts were there were deadlines to be met and obligations to be performed, one would need to be sure that one had the protection of such a clause to ensure that one’s obligations could be suspended for a time and they did not end up in place where one had technically breached one’s contract.
Just a Boilerplate Clause
The force majeure clause is largely considered a typical “boilerplate” clause. A boilerplate clause is a clause that is included in most contracts to regulate the operation of the contract such as its start, interpretation, ability to transfer, ability to enforce and its end. A boilerplate clause does not usually contain any commercial terms. Boilerplates tend to be standard clauses that are not generally heavily negotiated but boilerplate clauses are important.
The force majeure clause enables the contract parties to define a ‘force majeure event’ and dictate what the parties’ duties will be if such an event occurs. The parties may need to notify one another or seek to mitigate or resolve the problem. A party’s duties may be suspended pending the resolution of the issue and the other party may after a period be entitled to terminate the contract.
The force majeure clause enables a party to be excused from liability in a defined set of circumstances which would otherwise be considered a breach of contract. The inclusion of a well drafted force majeure clause in a contract will benefit parties by permitting some of the following remedies or action:
- suspension of the contract for a certain period
- non-liability in respect of delays or non-performance
- obligation on parties to mitigate their losses in certain circumstances; and
- right to terminate after a certain amount of time has passed.
In light of the recent weather events over the past 12 months, it cannot be denied that the presence of a force majeure clause’s place in commercial contracts is as important as ever.