force majeure - presentation

8/12/2019 Force Majeure - Presentation

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FORCE MAJEUREHiding Behind

Non PerformanceJonathan Moss

Partner

DWF Fishburns


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Private & Confidential. Not for distribution.

DWF LLP 2012 www.dwf.co.uk

SUMMARY OF TOPICS TO BE COVERED

What is Force Majeure?

Force Majeure versus Frustration

A review of recent catastrophes and their impact on performance

of contracts (effect, operation, reality)

Drafting tips, sample clauses

What to include in a Force Majeure notice

What to include in a response to a Force Majeure notice


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INTRODUCTION TO FORCE

MAJEURE

Force Majeure - The means by which contracting parties can avoid being tiedinto the obligations created by a contract

Force Majeure is an event which

(i) is beyond the control of the parties and

(ii) prevents, impedes, or delays the performance of a contract

The event must be unforeseeable, unpreventable (by the parties) and external

Operates to suspend or terminate the contract on terms agreed between theparties

A carefully drafted force majeure clause will always be clearer, more certainand more satisfactory than relying on general principles of law


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FORCE MAJEURE V FRUSTRATION

Force Majeure Advantages Frustration - Disadvantages

Certainty English Courts reluctant to find that aninternational trade contract has beenfrustrated

Does not always need to bring a contract toan end

Requirement for impossibility to perform thecontract; complete destruction of the objectof the contract

Temporary suspension or permanentsuspension subject to agreement or seekan extension of time for performance

Only applies in extremis

Negotiated terms of operation agreed by allparties

Will bring a contract to an end

Event does not have to be unforeseen ifagreed (unlike frustration)

Includes cessation of all future obligations


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DRAFTING CONSIDERATIONS

Description of the events that will trigger the operation of theclause

Terms that define the duration of the condition

Notice provision describing how a declaration of Force Majeureis to be communicated

The consequences of a Force Majeure occurrence i.e.defences/remedies available to the parties


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DEFINING FORCE MAJEURE EVENTS

Acts of God, earthquake, flood, fire, storm, epidemic

War

Revolution, rebellion, civil commotion, riot

Strike

Depletion, reduction or insufficiency of reserves

Rupture or explosion

Laws, regulations and any acts of any state


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PRACTICAL EXAMPLES COUNTRY TO

COUNTRY HIDING BEHIND NON-

PERFORMANCE

Annus Horribilis

During the course of 2011, natural disasters areestimated to have claimed the lives of over 30,000people across the globe and cost the worldwide

economy a record of $350 billion


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JAPAN

Tsunami in March 2011: 16,000 lives lost and costs inthe region of $210 billion making it the most costlynatural disaster ever recorded

Proliferation of disputes regarding Force Majeure

Consider the nature of the transaction in issue


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VIOLENCE, RIOTS AND CIVIL

COMMOTION - EGYPT

Egypt bore witness to violence, riots and civil commotionfrom January to June 2011

Contracting parties were unable to present documents

under letters of credit involving banks based in Egypt andused this as an excuse for non-performance

When the banks are still open for business there is no

difficulty


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FLOODS - THAILAND 2011/2012

Thailand suffered its worst floods in 50 years in 2011. 800 liveslost, 660,000 workers, 10,000 factories and 7 large industrialestates affected

Thailand issues:

Were the floods truly unforeseeable and unpreventable naturaldisasters or were they foreseeable (or even foreseen) andcapable of being prevented or at least mitigated in advance?

Were the floods caused or aggravated by official actions?


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CHECK LIST IN THE EVENT OF

POTENTIAL FORCE MAJEURE

Follow events as closely as possible on the ground andliaise with counter-parties

Check sales contracts for Force Majeure provisions,

notices, payments, procedural obligations

Talk to your counter-party (consider diverting vessels toalternative ports)

Notices sent to the broker or agent may be valid notice


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POINTS TO INCLUDE IN A FORCE

MAJEURE DECLARATION

The parties should specify in the notice what their rights andobligations are on the happening of a Force Majeure event.These could be:

Right to terminate without liability on either side

Suspension of performance until the Force Majeure eventceases without liability


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RESPONDING TO A SIMPLE FORCE

MAJEURE DECLARATION

The non-claiming party should respond with a requestfor reasonable details of the force majeure event(Request for Further Information):

Actual details of the FM eventIts impact on contractual performanceThe expected duration of the FM events

Efforts being undertaken by the claiming party toremedy the FM event or avoid its effects


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CONCLUSION

Force Majeure event is unforeseeable, unpreventable (by theparties) and external

The ability to declare a Force Majeure Notice depends on thedefinition of the goods/products and the specific description ofthe Force Majeure events in the contract

The Force Majeure clause must define

i. The events which will trigger the operation of the clause

ii. The impact those events will have on the party whoinvokes the clause

iii. And the effect invocation will have on the contractualobligations


15/15

FORCE MAJEUREHiding Behind

Non PerformanceJonathan Moss

Partner

DWF Fishburns

force majeure - presentation

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