A recent decision of the NSW Supreme Court considers the interplay between a force majeure clause and a contractual indemnity. While the case relates to a transport (and not a construction) contract, it raises interesting issues for consideration relating to the drafting of such provisions.

In Woolworths Group Ltd v Twentieth Super Pace Nominees Pty Ltd atf the Byrns Smith Unit Trust t/as SCT Logistics [2021] NSWSC 344, Woolworths engaged the defendant (SCT) to transport goods. Those goods were damaged when the train on which they were being transported derailed as a result of extreme weather. Woolworths claimed losses incurred in relation to the damaged goods pursuant to an indemnity contained in its transport contract with SCT, and SCT denied liability. SCT argued that a force majeure clause operated to relieve it of its obligation to indemnify because the goods were damaged in the course of a force majeure event. The Supreme Court did not agree with SCT's interpretation of the contract, and upheld the construction advanced by Woolworths. 

Clause 7.2 of the contract provided as follows:

"If a Force Majeure Event occurs, neither party is liable to the other for any delay or failure to fulfil its obligations under these Terms or the Procedures that is owing to the Force Majeure Event".

Clause 13.1 required SCT to indemnify Woolworths against losses incurred arising from or in connection with "any loss, theft, destruction or damage to the Goods". The Court was otherwise satisfied that further contractual provisions made it clear the parties intended allocating risk and liability in respect of the goods to SCT until acceptance by Woolworths at the contracted delivery point.

Of particular relevance in this case was the reference in clause 7.2 to liabilities for “any delay or failure to fulfil" SCT’s obligations. In holding that SCT was not relieved of its obligation to indemnify, Justice Henry noted that clause 7.2:

"is directed to relieving SCT of liability for delays or failures in fulfilling its obligations in performance of the Services to the extent that the delays or failures are due to a Force Majeure Event but it does not absolve SCT of the risk and liability in respect of the Goods. The primary obligation and liability of SCT as an indemnifier to Woolworths under cl 13.1(b) for damage to the Goods is distinct from SCT’s liabilities as a contracting party in the performance of its obligations to transport the Goods in respect of which a delay or failure may give rise to breach of the Agreement."

Further, Justice Henry stated that clause 7.2:

"operates as a mechanism to reallocate liability in respect of performance of an obligation that is delayed or prevented due to factors outside the control of the parties and avoids any such delay or failure from becoming a breach of the Agreement for which SCT is liable."

Despite resulting in damage to the goods, the force majeure event did not delay or prevent compliance with the obligation in issue, namely the obligation to indemnify. Deferring again to the text of clause 7.2, Justice Henry stated "In my view, the words “owing to” make clear that a causal link must be established between the alleged Force Majeure Event and SCT’s failure to perform the obligations for which it seeks to be relieved. Where force majeure relief is sought, a causal connection must usually be established between the circumstance relied on (the force majeure event) and the effect on performance".

This decision reinforces the care that must be taken by parties when drafting contracts, in particular to ensure that interrelated provisions yield the commercial outcomes intended.