26 October 2018 by

Force Majeure and Brexit

With Brexit negotiations adding to the uncertainty of our ever changing world, where the political, social and economic climate seems to be in a constant state of flux, businesses would be wise to know their contractual rights if an event beyond their control affects the performance of their contracts.

“Force Majeure” clauses are commonly found in contracts.  They can excuse one or all parties from performing their obligations under a contract, if an event occurs that is beyond the reasonable control of the parties and stops the contract from being performed. Examples of these events typically include a flood or fire but it has recently been questioned whether Brexit would trigger a specifically drafted clause of this kind.

If you are intending to rely upon a Force Majeure clause for non-performance, you must show that the event in question is within the scope of the clause and that the sole reason for non-performance of the contract was due to that event – i.e. ‘but for’ the event in question, performance of the contract would have happened.

The courts considered the so called ‘but for’ test in a recent case.  The defendant did not supply an iron ore cargo to the claimant, as required by the contract. The defendant sought to rely on the Force Majeure clause in their contract arguing that a dam bursting at the mine supplying the iron ore had prevented the delivery. The judge decided that the defendant could not rely on the clause.  He looked at the previous trading history between the parties and found that the defendant had previously failed to make a delivery for economic reasons.  The judge explained that, ‘but for’ the dam bursting, they would probably still not have delivered the ore. The defendant could not therefore rely on the clause and was contractually obliged to make the delivery.

Could ‘Brexit’ trigger a Force Majeure clause and be used to justify the non-performance of a contract?

The answer, as with most things concerning Brexit, is uncertain.  It is likely to depend on the terms of the contract and the exact wording of the Force Majeure clause.  Most agree though, that it is certainly possible to think of wording and circumstances where Force Majeure could potentially be used.

As was illustrated with the recent case, best practice must be to seek legal advice and carefully review the clause and the surrounding circumstances before relying on it.  At the very least, ask the question “but for Brexit, could I still have performed the contract?”

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