Multinational steel and mining company, ArcelorMittal, recently announced force majeure on an iron ore production project in Liberia due to the current Ebola epidemic in West Africa.
So what is “force majeure”?
The term “force majeure” derives from French law and has no recognised meaning in English law. The underlying principle of a force majeure clause in a contract is to excuse a party from performing its contractual obligations (in whole or in part) following the occurrence of extraordinary events or circumstances beyond the party’s control. Generally, parties prefer for their contracts to comprehensively list examples of acts, events or circumstances which could trigger the force majeure clause. However, no list could ever cover every situation so sometimes parties prefer to leave “force majeure” undefined and then argue the point when the problem arises. The obvious disadvantage of this latter approach is that it may result in uncertainty if there is disagreement between the parties over whether a series of events amounts to force majeure.
What happens if the force majeure clause is triggered?
The precise effect of a force majeure clause will depend on how it is drafted but generally, its effect includes some (or all) of the following:
- Suspension – the affected obligations are suspended while the force majeure event continues and the contract is re-activated if the event ceases so the affected obligations do not go away;
- No liability – the non-performing party’s liability for delay in performance of the affected obligations is removed, typically for such period of time as the force majeure event continues; and
- Termination – if it becomes commercially unfeasible for the parties to resume performance of their respective contractual obligations once the force majeure event comes to an end, the force majeure clause could provide for either or both parties to serve notice terminating the contract after a specified period thus, enabling then to make alternative arrangements, and such a termination could be without liability (except in respect of prior breaches).
Sometimes, the benefit of a force majeure clause may only be available if the party wishing to rely on it has taken all possible steps to avoid the event and or the impact of its consequences. However, in practice it may often be difficult for an affected party to prove this.
What if my contract has no force majeure clause?
In the absence of an express force majeure clause, the English common law doctrine of “frustration” could apply in limited circumstances. However, a wider range of options may be available under the Civil Codes that tend to exist in many Francophone countries in Africa. Such options may include an opportunity to argue that the performance of the contract has become “impossible” to perform (“l’impossibilité d’exécution de contrat”).
So what should I do?
Over recent years and especially after the foot and mouth crisis of 2001, the 2009 swine flu pandemic, the volcanic ash disruption in Easter 2010, and more recently the 2014 Ebola outbreak in West Africa, parties (and their lawyers) have started reviewing force majeure clauses in much more detail. Indeed, a well negotiated and well drafted force majeure clause in a project contract is almost akin to a contingency plan so it is worth dedicating sufficient time and resources to ensure that the force majeure clause in your contract works – not just legally but also commercially for your business.
In addition to the contractual provisions (and irrespective of the governing law which applies to your contract), it is also important to understand the impact of local laws as they too might offer alternative solutions as mentioned above. Given the current outbreak of Ebola in West Africa which the World Health Organization has described as an epidemic constituting an international health emergency, it would be sensible to undertake a review of your contracts to see how they would deal with such epidemics / international health emergencies.