The ongoing conflict in Ukraine and recent truckers convoys have caused significant disruption to supply chains. Only a few months into 2022, the year is shaping up to be just as volatile as the last. Transportation companies may want to review force majeure clauses afresh to re-evaluate their continued efficacy.
Force majeure clauses typically excuse non-performance of a contractual obligation when an unexpected or unforeseeable event occurs that was not caused by any party and affects the agreement by either limiting or making impossible performance by one or both parties. These clauses are also referred to as Act of God clauses. Events such as war and civil unrest or other situations that prevent performance may allow parties to invoke the force majeure clauses in their contracts to avoid damages for non-performance.
The salient point for 2022 is that some disruptions may no longer be considered to be “unexpected” or “unforeseeable”, particularly if the event has now been protracted or familiar. New Covid lockdowns at ports in China or elsewhere, for instance, or extended/recurring trucker convoys may be examples where “force majeure” is disputed.
Readers are reminded that force majeure is not implied through the common law. Importantly, whether and to what extent a force majeure clause can operate to excuse contractual obligations, when an unexpected event occurs, depends on the language and scope of the clause. In particular, adapting contractual definitions of force majeure events to current realities is key.
As well, some clauses may only suspend the contract or certain performance for a period of time, while other clauses may provide for termination entirely. These clauses are typically interpreted narrowly, so a party should ensure that the result from invoking the force majeure clause aligns with business objectives. For a more in-depth review of force majeure clauses, please see some of our other articles: “Covid-19 and Unfulfilled Transportation Contracts” and “Force Majeure – what exactly does that mean?”
In the event that a contract between parties does not have a force majeure clause or the force majeure event is disputed, parties might still rely on the contractual doctrine of frustration to release themselves from their obligations. However, the standard to meet in order to invoke frustration is high, as the test is whether an event has occurred after the formation of the contract that makes performance of the contract radically different from what the parties contemplated. As such, with “familiar” disruptions, frustration may be inapplicable; properly worded force majeure clauses take on added importance.
Companies should therefore be careful to revisit their contractual protections and reassess if protective wording continues to be effective in shielding business interests.
