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Ensure your contract does not force a majeure problem for your business…

30 November 2018

Force Majeure clauses are found in a wide variety of contracts from supply and distribution agreements to construction contracts, service contracts and even banking and finance agreements. They primarily operate to exclude liability for any losses arising as a result of any circumstances that are outside of a particular party’s control.

The scope of the exclusion of liability in force majeure clauses is often drafted intentionally broadly, with a view to ensuring the widest range of circumstances possible for which the liability of the parties is excluded.

Force majeure clauses do not often appear in case law, but a recent high court case, Classic Maritime Inc v Limbungan Makmur SDN BHD (and others) (2018), serves as a reminder of how important it is to ensure that such clauses are drafted by professional practitioners.

In this case Classic Maritime contracted with Malaysian charterer Limbungan Makmur to carry iron ore pellets from Brazil to Malaysia. The bursting of the Fundao Dam in Brazil in 2015 prevented Limbungan from delivering the iron ore pellets to Classic and Limbungan tried to rely on the force majeure clause to avoid liability for the missed delivery.

In the force majeure clause that court reviewed, the specific language used rendered the clause a “mere exclusion of liability clause”, rather than a “contractual frustration” clause. This meant that Limbungan had to show that “but for” the bursting of the Fundao Dam, they would have made the delivery. In actual fact, they had missed two previous deliveries as well, citing poor economic conditions as the reasons, and so they failed to satisfy the “but for” test.

Crucially, the judgement of the court makes clear that, had the clause been drafted to provide for the termination of the contract as a result of a force majeure event, it would have been deemed to be a “contractual frustration” clause and the “but for” test would not have applied. In that case, Limbungan may have been able to successfully rely on the clause to avoid liability.

Many commentators see this as a significant development in the case law around force majeure clauses. With Brexit just around the corner and the inevitable customs disruption that this will bring, it is likely that many more companies will be trying to rely on such clauses.

For more information about this and our Commercial Law services, please contact Luke Pritchard on 01270 621652 or Jonathan Hill on 01270 621653.

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