FORCE MAJEURE

Internationally, there is no standardised concept of ‘force majeure’ and its legal consequences.

I. UNIDROIT PRINCIPLES 2016

ARTICLE 7.1.7 (Force majeure)

Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

When the impediment is only tempo¬rary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract.

The party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non-receipt.

Nothing in this Article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due.

Comment

1. The notion of force majeure

This Article covers the ground covered in common law systems by the doctrines of frustration and impossibility of performance and in civil law systems by doctrines such as force majeure, Unmöglichkeit, etc. but it is identical with none of these doctrines. The term “force majeure” was chosen because it is widely known in international trade practice, as confirmed by the inclusion in many international contracts of so-called “force majeure” clauses.

Illustration

A, a manufacturer in country X, sells a nuclear power station to B, a utility company in country Y. Under the terms of the contract A undertakes to supply all the power station’s requirements of uranium for ten years at a price fixed for that period, expressed in US dollars and payable in New York. The following separate events occur:

After five years the currency of country Y collapses to 1% of its value against the dollar at the time of the contract. B is not discharged from liability as the parties have allocated this risk by the payment provisions.
After five years the Government of country Y imposes foreign exchange controls which prevent B paying in any currency other than that of country Y. B is excused from paying in US dollars. A is entitled to terminate the contract to supply uranium.

After five years the world uranium market is cornered by a group of speculators. The price of uranium on the world market rises to ten times the contract figure. A is not excused from delivering uranium as this is a risk which was foreseeable at the time of making the contract.

2. Effects of force majeure on the rights and duties of the parties

The Article does not restrict the rights of the party who has not received performance to terminate if the non-performance is fundamental. What it does do, where it applies, is to excuse the non¬performing party from liability in damages.

In some cases the impediment will prevent any performance at all but in many others it will simply delay performance and the effect of the Article will be to give extra time for performance. It should be noted that in this event the extra time may be greater (or less) than the length of the interruption because the crucial question will be what is the effect of the interruption on the progress of the contract.

Illustration

A contracts to lay a natural gas pipeline across country X. Climatic conditions are such that it is normally impossible to work between 1 November and 31 March. The contract is timed to finish on 31 October but the start of work is delayed for a month by a civil war in a neighbouring country which makes it impossible to bring in all the piping on time. If the consequence is reasonably to prevent the completion of the work until its resumption in the following spring, A may be entitled to an extension of five months even though the delay was itself of one month only.

Force majeure and hardship

This Article must be read together with Chapter 6, Section 2 of the Principles dealing with hardship (see Comment 6 on Article 6.2.2).

The definition of force majeure in paragraph (1) of this Article is necessarily of a rather general character. International commercial contracts often contain much more precise and elaborate provisions in this regard. The parties may therefore find it appropriate to adapt the content of this Article so as to take account of the particular features of the specific transaction.

Force majeure, like hardship, is typically relevant in long-term contracts (see Comment 5 on Article 6.2.2), and the same facts may present both hardship and force majeure (see Comment 6 on Article 6.2.2). In the case of hardship, the Principles encourage negotiation between the parties to the end of continuing the relationship rather than dissolving it (see Article 6.2.3).

Similarly, in the case of force majeure, parties to long-term contracts can anticipate that, in light of the duration and nature of the relationship and, possibly, large initial investments whose value would be realised only over time, they would have an interest in continuing rather than terminating their business relationship. Accordingly, the parties may wish to provide in their contract for the continuation, whenever feasible, of the business relationship even in the case of force majeure, and envisage termination only as a last resort. Such provisions can take a number of forms.

Illustration

A long-term contract contains a provision to the effect that, except where it is clear from the outset that an impediment to a party’s performance is of a permanent nature, the obligations of the party affected by the impediment are temporarily suspended for the length of the impediment, but for no more than 30 days, and any right of either party to terminate the contract is similarly suspended. The provision also states that, at the end of that time period, if the impediment continues the parties will negotiate with a view to agreeing to prolong the suspension on terms that are mutually agreed. It also states that, if such agreement cannot be reached, disputed matters will be referred to a dispute board pursuant to the ICC Dispute Board Rules. The parties are bound by that procedure.

II. CISG

Art. 79 CISG

(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

(2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:

(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

(3) The exemption provided by this article has effect for the period during which the impediment exists.

(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.

(5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention.

III. GERMAN CIVIL CODE (BGB)

The term ‘force majeure’ is not defined in German law. This can be explained by the fact that in German law, especially in sales law, unlike the UN Convention on Contracts for the International Sale of Goods, compensation for damages requires fault. However, there is no fault in the case of forc majeure.

The Federal Court of Justice (BGH) understands it to mean an ‘external event that has no operational connection and cannot be averted even with the utmost care that could reasonably be expected’ (BGH, judgement of 16 May 2017, case no. X ZR 142/15).

In short: ‘Force majeure’ requires an external, unavoidable event for which the parties are not responsible. The term can include unforeseeable events such as war, natural disasters or pandemics – subject to a case-by-case assessment.

It makes sense to first look at the contract or general terms and conditions to see whether they contain express provisions. In particular, supply contracts regularly contain clauses listing events that are to be regarded as ‘force majeure’.

When assessing ‘force majeure’, it also plays a role whether the contract was concluded before or only when the event occurred. The assessment becomes more difficult for contractual relationships that are concluded during a pandemic or a military conflict. In this case, the required ‘unforeseeability’ of the event may be lacking and therefore cannot be qualified as an act of ‘force majeure’.

IV. BELGIAN CIVIL CODE

Until the introduction of Book 5, force majeure was not defined in the Civil Code. Articles 1147 and 1148 of the former Civil Code referred to force majeure without defining the term. The Cour de cassation has finally defined force majeure as an event that constitutes an insurmountable (and inexplicable) impediment to the performance of an obligation (see, among others, Cass. 9 December 1976; Cass. 7 March 2008; Cass. 18 October 2001; Cass. 4 June 2015). 4 June 2015). The concept of force majeure has subsequently been defined and clarified by case law and doctrine.

Whith the reform of the Civil Code, the legislator finally decided to include a definition of force majeure in Article 5.226 of the Civil Code which now describes force majeure as ‘the inexplicable impossibility for the debtor to perform his obligation. Account is taken here of the unforeseeable and unavoidable nature of the impediment’.

Generally speaking, force majeure only exists when two conditions are met. Firstly, there must be an actual impossibility of performing or fulfilling a given obligation. Secondly, this impossibility must result from a circumstance or event which is not attributable to the debtor of the obligation in question.

In the case of cash obligations in particular, the delivery of a batch of cereals, flour or sand, or a payment obligation where the cash is money, it will not be easy to invoke force majeure, let alone prove it. Cases of force majeure do not disappear in principle; they can always be found somewhere. Except perhaps for very specific or exclusive cash cases, the delivery of cash cases will perhaps become more difficult and perhaps also more expensive, but the impossibility of performance will not quickly become an impossibility.

However, Book 5 of the new Civil Code explicitly states that impossibility must be judged reasonably and humanely, not absolutely.

The second condition of force majeure is that the circumstances or events invoked by the debtor of a given obligation are not attributable to him. Thus, the non-performance or non-fulfilment must not be attributable to the debtor, nor caused by a fault of the debtor or a person for whom the debtor acts as guarantor, such as a member of staff or a self-employed person. Imputability is assessed in the abstract, using the criterion of the normal, prudent and reasonable person in the same factual circumstances. In addition, the events in question must have been unforeseeable or foreseeable when the contract was concluded, and could not have been avoided by taking certain precautions. Do not forget that each contracting party always has a duty to limit damage in all cases, and therefore, even outside this question of force majeure, a contracting party may be expected, if it cannot perform, at least to do everything in its power to limit damage as far as possible.

As soon as the debtor is aware of a situation of force majeure, he must inform the creditor within a reasonable time.

If force majeure is not invoked, the debtor is still in default and, strictly speaking, there is still a default. But the debtor’s liability in principle and liability for its consequences cease. The debtor is therefore released from his obligation to perform the obligation in question, and is exempt from compensating the co-contracting party-creditor for the resulting loss. The fundamentally inaccessible binding force of contracts – pacta sunt servanda – is thus removed.

V. FRENCH CIVIL CODE

Article 1218 (Amended by order no. 2016-131 of 10 February 2016 – art. 2):

Force majeure occurs in contractual matters where an event beyond the debtor’s control, which could not reasonably have been foreseen when the contract was concluded and the effects of which cannot be avoided by appropriate measures, prevents the debtor from performing his obligation.

If the impediment is temporary, performance of the obligation is suspended unless the resulting delay justifies termination of the contract. If the impediment is definitive, the contract is terminated ipso jure and the parties are released from their obligations under the conditions set out in articles 1351 and 1351-1.

 

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