Adrian Bell, Victoria Peckett, Phillip S Ashley and Aidan Steensma
A Commercial Court decision earlier this month has considered the extent to which a force majeure clause requires a party to prove that it would otherwise have performed its obligations in the absence of any force majeure event. In upholding such a requirement, the court emphasised the nature of the clause before it as an exceptions clause and distinguished previous case law dealing with force majeure clauses which lead to the termination of a contract. The case leaves a question as to how force majeure clauses which fulfil both purposes, such as that contained in the widely used FIDIC or LOGIC forms, are to be interpreted under English law...
Introduction Force majeure clauses are commonly found in international construction, oil and gas and energy contracts. They typically excuse a party from performance and/or allow a right of termination upon the happening of events which render performance of the contract impossible, whether temporarily or permanently. A force majeure clause may apply only to certain events or generally to matters beyond the control of the parties. Such clauses typically require a force majeure event to have “prevented" performance of the contract or that impossibility of performance has arisen "as a result of" the force majeure event. This causative language poses an issue as to whether the clause applies only if a party can show that it would have performed the contract but for the force majeure event, not merely that the event made performance impossible regardless of whether performance would otherwise have been achieved. In short, whether the “but for” test applies. Previous English cases (including a decision of the House of Lords) have held that force majeure clauses which reflect the common law doctrine of frustration and provide for the termination of a contract do not require a “but for" test for causation to be satisfied (despite the use of causative language such as the word “prevented”). This mirrors how the doctrine of frustration operates at common law. A second line of English cases distinguishes between clauses which suspend performance so that the party concerned is not in breach of contract and other clauses which merely exempt a party from liability for breaches caused by a force majeure event. The question before the court in the present case was whether a force majeure clause which merely exempted a party from liability should be interpreted as not requiring the “but for” test to be satisfied. Classic Maritime Inc v Limbungan Makmur SDN BHD Classic, a ship owner, entered into a long term contract of affreightment with Limbungan for the carriage of iron ore pellets from Brazil to Malaysia. Limbungan intended make shipments under the contract using iron ore pellets obtained from the Germano iron ore mine in Brazil, owned by Samarco. On 5 November 2015 a tailings dam forming part of the mine burst, leading to loss of life and the biggest