Case law in Force majeure 

  1. Interpretation  of clauses (ejusdem generis rule)   :

  • McCardie J. in Lebeaupin v Crispin [1920] 2 KB 714) -the precise ambit of the term will depend on the context in which it is used.

            ‘A Force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard               to the nature and general terms of the contract. The effect of the clause may vary with each instrument.


  • Mr. Justice Devlin in Chandris v Isbrandtsen-Moller Co Inc (1949) 83 Ll. L. Rep. 385 at p.392 – Application of ‘ejusdem generis’ rule. ‘Initially, the courts were reluctant to apply the ‘ejusdem generis’ rule in construction of contracts. (Ejusdem generis- Literally “of the same kind.” A rule used in statutory interpretation that presumes that a general term following a list of specific terms will be limited to the more specific term — in other words, the general term will be defined to be “of the same kind” as the more specific preceding terms)


  • Amerada Hess Development and Texaco (Britain) [1988] 1 Lloyd’s Rep 145- The clause in that case was limited to events which were similar to those listed before the general words ‘other cause beyond the reasonable control of such party’ on the basis that if such words applied to any such cause there would be no need for the preceding events listed (which were in a catastrophic vein, such as riot, war, act of God and fire).


         Although these positions seem to conflict, in fact they can both be seen as consistent with general principles of contractual interpretation.


  • Tandrin Aviation Holdings Limited v Aero Toy Storen LLC [2010]   -  A rule used in statutory interpretation that presumes that a general term following a list of specific terms will be limited to the more specific term — in other words, the general term will be defined to be “of the same kind” as the more specific preceding terms and noted in deciding whether a Force majeure clause applied to the ‘cataclysmic downward spiral of the world’s financial markets’, that although there was no requirement to include the phrase ‘any other cause beyond the Seller’s reasonable control’ ejusdem generis with specific examples set out in the clause (in that case act of God, war, fires and the like) ‘it is telling that there is nothing in any of those specific example  which is even remotely connected with economic downturn, market circumstances or the financing of the deal’.


It seems therefore that the process of interpretation and construction is to consider the terms laid out before the general words used and determine their effect on the clause as a whole, without resorting to the specific ejusdem generis rule. Admittedly, this may mean that there is no difference in the outcome of that process of interpretation and it does lead one to wonder whether such a fine distinction is required at all. However, by adopting a more general approach to contractual interpretation, rather than the ejusdem generis rule, all the terms and circumstances of the case can be taken into account. This may result in a fairer result for both parties, rather than a strict application of principle.


Interestingly, it seems that despite the emphasis on general interpretation of the words used in a clause, there is one event which does have a general rule: an increase in price (or indeed financial impact in general) has generally been held to be insufficient by the courts. In Tandrin Hamblen J noted at [40] that ‘it is well established under English law that a change in economic/market circumstances, affecting the profitability of a contract or the ease with which the parties’ obligations can be performed, is not regarded as being a force majeure event.’

This seems surprising as a general rule, but in fact it accords with other common aspects of the clause. For instance, in the absence of clear wording the courts do not regard increased difficulty of performance to be sufficient, and in determining whether the event is ‘beyond the reasonable control’ of the party it has been held that reasonable steps, including increasing wages of workers, are within the control of a party.

This in turn suggests that despite the theme of general interpretation only, in this instance at least, a court may well rely on or at least draw from dicta from the case law in deciding the effect of an event is sufficient (unless of course the parties have expressly included events such as financial difficulty).


2.  Whether the event has to be beyond the parties’ reasonable control    :

In contrast to the preceding discussion on the type of event, which would count, whether that event has to be beyond the control of the parties is fairly straightforward. Although the courts are careful to note that any particular clause will rely on its wording, the general theme is that the event must be outside the control of the party seeking to rely on it.

This is often explained by reference to whether a party could have avoided the event by taking reasonable steps. For example, in Channel Island 

Ferries Ltd v Sealink the court found that a force majeure clause covering strikes ‘beyond the control’ of a party did not cover strikes that could be settled by taking reasonable steps for example increasing wages.

B&S Contracts and Design,Ltd Victor Green Publications Ltd the court found that the claimants had acted unreasonably in refusing to pay the full amount of severance pay demanded by its workers to avoid a threatened strike, and therefore could not rely on the force majeure clause in its contract with the defendants.


  • Tennants(Lancashire) Ltd v CS Wilson & Co Ltd [1917] AC 495 - the force majeure provision included the term ‘hindering’ delivery of the goods and the sellers were entitled to rely on it when, following the outbreak of the First World War, they were prevented from using their principal supplier in Germany even though there was a small English supply they could have used. This is perhaps unexpected: being unable to use a supplier when there are other suppliers available does not sound like it would invoke a force majeure clause and relieve that party of its obligations under the contract.


Looking specifically at whether failure by a third party, or inability to use a specific third party, would suffice, it seems that this is dependent, as ever, on the precise wording of the clause and the surrounding circumstances of the contract as a whole.


  • PJ Van der Zjiden Cross [1975] 2 Lloyd’s -  a contract for the sale of frozen Chinese rabbits included a term stating ‘should the sellers fail to deliver…or to effect shipment in time by reason of war, flood…or any other causes beyond their control’ then they were entitled to cancel the contract. The court held that the clause did not operate to entitle the sellers to cancel the contract when they were let down by their Chinese suppliers since this event did not prevent them performing by other means. In particular, they had failed to show that they could not have bought such goods elsewhere.


In contrast,

Ford & Sons (Oldham) Ltd v Henry Leetham & Sons Ltd (1915) - a contract for the sale of wheat included a clause giving the seller an option to cancel ‘in case of prohibition of export blockade or hostilities preventing delivery of wheat to this country’. Just before the First World War prohibitions on the export of wheat were imposed by a number of countries, including some of the sellers’ suppliers. The court held that even though the US and Canada had not imposed such prohibitions the seller could rely on the clause.


It is difficult to distinguish these cases on their wording alone, although it can perhaps be said that in the former case the clause required a direct link between the force majeure event and the failure to deliver, whereas the latter could be interpreted as being drawn more widely.


3. Taking the whole contract in  :

Hamblen J in Bunge SA v Nidera BV [2013] - that the contract in Ford & Sons (Oldham) Ltd was a domestic sale which did not require any export or import of the wheat, and the clause was probably designed to cover any effect on the market price.


This does not mean that failure by a third party supplier to deliver will invariably, or even usually, constitute a force majeure event sufficient to bring it within this type of clause. However, it reinforces the point that everything turns on the wording of the clause, and if parties wish to exclude this type of happenstance, they should probably say so.


4. Foreseeability of force majeure events :

The final issue addressed in this article is whether or not the force majeure event has to be unforeseeable. At first glance, it might be thought that this is obvious; if the parties had foreseen an event, which would prevent obligations under the contract being performed, they would (or should) have contracted for it. Indeed, the French doctrine of force majeure requires that the relevant event must be unforeseeable. Indeed, the oxford English Dictionary defines the legal definition of force majeure as ‘unforeseeable circumstances that prevent someone from fulfilling a contract’.


Staughton J in Navrom doubted that this was the case in English law, and there is no principle of English law to that effect. For example in SVS Gas Supply and Trading SAS v Naftomar Shipping and Trading Co Ltd [2005] EWHC 2528 (Comm) Christopher Clarke J held that the fact that bad weather could have been foreseen did not affect the operation of the force majeure clause and cited Staughton J in Navrom to the effect that some wars, strikes or abnormal weather could be foreseen but it was more a question of causation as to whether the foreseen event caused a party’s failure in performance. Treitel refers to the definitions of ‘fault’ in the Sale of Goods Act 1979 and the Uniform Commercial Code: the ‘wrongful act or default’ or ‘default, breach or wrongful act or omission’at 14-007


The Marine Star (No 2) [1996] 2 Lloyd’s - a supplier’s default does not necessarily amount to a fault on the part of the contracting party so as to prevent reliance on the force majeure clause.

Channel Island Ferries Ltd v Sealink  - the court found that a force majeure clause covering strikes ‘beyond the control’ of a party did not cover strikes which could be settled by taking reasonable steps for example increasing wages It should be noted that as per


This brief look at some of the common issues in respect of force majeure clauses has demonstrated the lack of general doctrine in this area. As is often the case with contract law, the wording used by the parties is paramount and the courts’ main aim is to determine the proper interpretation of the clause using general principles of construction. However, there are some overarching, and often subtle, guidelines that the courts do follow when engaging the interpretative process. It follows that if parties wish their force majeure clause to include or exclude a particular circumstance, they should spell it out. Failure to do so could not only lead to litigation cost misery (for everyone but the lawyers involved, for whom such an open area of law is filled with delightful possibility) but also to serious consequences in respect of whether or not they are liable under the contract.

                   

5. Party must show that it would have been able to perform its obligations by the usual method  :

Limbungan Makmur vs  Classic Maritime- Force majeure clauses excuse a party from performing its contractual obligations if one or more of the force majeure events, such as a natural disaster, prevent it from performing. To be excused by the force majeure clause the party must show that it would have been able to perform its obligations by the usual method if the force majeure event had not happened.

In this case the force majeure event was a  burst of a dam in Brazil which halted production of iron ore pellets at a mine in the area. Ship owner Classic Maritime sued Malaysian company Limbungan Makmur for breach of contract after Limbungan failed to provide cargoes of iron ore pellets for shipment after the disaster.

Limbungan tried to rely on the force majeure, or ‘Chance Occurrence’ clause in its contract with Classic Maritime for its failure to deliver the cargo.

However it had also failed to ship two cargoes before the mine burst as its owners had not wanted it to ship iron ore pellets in weak economic conditions. Therefore the court found that it would not have shipped the cargo even if the dam had not burst.

In order for Limbungan to have relied on the force majeure clause, it would have had to show that it had “arrangements” in place to perform its duties under the contract. In this case the charterers did not have such arrangements, and this was more to do with the state of the market for iron ore than the disaster. 

Nevertheless the judge ruled that because of the disaster, even if Limbungan had been willing to ship the cargoes it would have been unable to. As a result, Classic Maritime was not entitled to substantial damages for the cargoes missed after the dam burst.


In coming to this conclusion the court applied the “compensatory principle” that damages should put the claimant in the position it would have been in had the breach not happened. In this case, had the charterers been able to ship the five cargoes, the charterers would have been entitled to rely on the force majeure clause following the disaster, and would therefore have been excused from performing  Classic Maritime was entitled to damages for the two shipments missed before the dam burst.


6.  An impediment, which is beyond the reasonable control of that party  :

It is common to see force majeure defined by a list of events followed by a general sweep up provision. In Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] the defendant sought to justify its refusal to accept delivery of an aircraft on the basis that the alleged ‘unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial markets’ constituted ‘any other cause beyond the Seller ’s reasonable control’ as provided for in the force majeure clause of the contract. This, they said, postponed the time for the defendant to complete the purchase.

The judge rejected the argument. He held that this phrase had to be read in the context of the entire clause. Although the judge noted that the phrase ‘any other cause beyond the Seller’s reasonable control’ did not need to mirror the specific examples set out earlier in the definition, he pointed out that it was nonetheless telling that nothing in any of those specific examples was even remotely connected with economic downturn, market circumstances or the financing of the deal.


  • Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd ’s -

‘ It does not at all follow that the supplier is entitled to rely upon an increase in the market price in comparison to the contract price as a force majeure circumstance … This conclusion is consistent with a line of cases, both on force majeure clauses to the effect that the fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure’


The burden of proof is on the party seeking to rely upon the force majeure clause. He must prove the occurrence of the event he is relying on and that he has been prevented hindered or delayed (as the case may be) from performing the contract by reason of the event. Subject to the terms of the contract, he must also prove that the event in question was beyond his control and that there were no further steps he could have taken to avoid or mitigate the consequences: Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd ’s Rep 323. In that case a clause that included ‘strikes beyond [its] control’ did not bite if the party seeking to rely on the clause could have settled the strikes by taking reasonable steps.


It is tempting to try and give a general sense of what a court would regard as a force majeure event, and encourage a more principled approach to this area. However, this could lead parties into a false sense of security; whether or not a clause will count will depend on the words used in the clause itself and the general construction of the contract, and no such summary can sensibly be done on the basis of the current law.


It may be thought that the courts would have taken a more structured approach when faced with clauses which specify a number of events in the Force majeure provision which are then followed by the words ‘or any other causes beyond our control’ or similar. At the very least, it could be expected that the preceding specified events guide the interpretation of the latter words. The answer to this is not straightforward.

 

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