CONTRACTS: FORCE MAJEURE AND FRUSTRATION

Read A, which is about force majeure and the common law doctrine of frustration. Some clues to help you fill the gaps are given below.

1. bi - d - - g (unbreakable) 6. se - - - - g (asking for; attempting to) 2. f - lf - - - ed (carried out; done) 7. o - - -ous (arduous; difficult) 3. i - - -ied (not stated directly) 8. pre - - - - - t (case creating new law) 4. h - - d (decided; considered) 9. f - - - - r (prefer; support; choose) 5. l - - - - - - tion (codified law) 10. a - - erse (damaging; negative)

(A) In order to form a contract under UK law there must be offer, acceptance, consideration and an intention to create legal relations. If all of these elements are present a contract has been formed which is (1) ….. upon the parties and is therefore legally enforceable. The contract will come to an end once the parties have (2) ….. their respective obligations, in which case, the contract can be said to have been discharged. The contract may also come to an end because one of the conditions set out in the termination clause has been satisfied. Once a contract has been executed it is not easy for a party to suspend or cease its obligations in any other circumstances. There may, however, be events which occur which prevent either one of the parties from complying with its obligations. In this case, the parties may be able to set aside or delay the contract depending on the circumstances of the situation or the express provisions of the agreement.

Force majeure is a concept that all commercial lawyers need to be aware of. However, there is a significant difference between how force majeure applies in common law as opposed to civil law jurisdictions. In UK law, force majeure is not automatic or ‘presumed’. It cannot therefore be seen as an (3) ….. term of a contract and must be expressly included. For this reason, a force majeure clause is usually included as a standard, so-called ‘boilerplate clause’ in common law contracts. A typical force majeure clause will state that either party to a contract cannot be (4) ….. liable for any delay in performance or permanent suspension of its performance due to unforeseeable events beyond the control of the contracting parties. The clause will either detail the types of unforeseeable events the parties can rely on, which will almost always include Acts of God (this refers to natural disasters), or, may refer to any new piece of (5) ….. which has been enacted by Parliament which prohibits a party from complying with its obligations.

If there is no force majeure clause a party may inform the court that he or she is (6) ….. to rely on the common law doctrine of frustration. Frustration can be argued when a party to a contract is faced with the occurrence of an event which makes the performance of an obligation an impossible or unreasonably (7) ….. task. This means that carrying out the obligation would be incredibly difficult or, to be more accurate, incredibly ‘burdensome’. This legal doctrine of frustration has been created by judges giving decisions in several binding, (8) ….. cases in this area of contract law. The fact that these cases tend to go against the party attempting to argue frustration shows that the English courts have been reluctant to find in (9) ….. of a party wishing to rely on the doctrine of frustration to escape liability in breach.

Frustration and force majeure are interlinked concepts. However, unlike a force majeure provision, in the UK frustration can be cited where there is no express provision in the contract. Frustration does not usually cover delayed performance unless the delay is particularly long or has had what is called ‘a material (10) ….. effect’, meaning a very harmful effect, on the contractual obligations of the parties.

Refer back to the page opposite on the topic of force majeure and frustration and match the highlighted words with the definitions below.

(1) protect against something negative, such as a legal claim or a financial loss (2) depend on something with the belief that you are right to do so (3) suppose that something is the case; believe something to be a certain way because it is likely, although not certain (4) fully performed; the contract is ended because both parties have carried out their obligations (5) hesitant; more unwilling than willing to do something (6) a standard, general or miscellaneous clause in a contract, such as a jurisdiction or governing law clause (7) a principle of English law that excuses a party from liability because fulfilling the obligation would be very difficult and troublesome (8) temporarily stop an activity or temporarily stop something from being in force or effect

Read the facts of the following case, which is about a precedent case on the doctrine of frustration and complete the information with a preposition from the box below.

(a) behind (c) from (e) over (g) before (b) to (d) for (f) in (h) under Taylor v Caldwell (1863), is a precedent case in the common law doctrine of frustration. The claimant, Taylor, agreed to hire a music hall from the defendant, which was to be used (1) ….. “grand concerts” (2) ….. a period of four nights. However, before the first performance could take place there was a fire and the hall burnt to the ground. Taylor then sued for breach of contract. The question (3) ….. the court was whether the impossibility of using the building, which was the fault of neither party, excused the parties’ obligations (4) ….. the Contract of Hire. According to the doctrine of absolute obligations, the defendant would be liable to the claimant due to not being able to perform his main obligation. In his judgment, Justice Blackburn commented on the “harshness” of this absolute obligation and held that the defendant was released from his obligations under the doctrine of frustration. The legal reasoning (5) ….. this decision was that this was the most just solution and the one that made the most sense in terms of contract law. In other words, if the parties were forced to continue with their obligations under the contract, even though the music hall was not usable, then this performance of an obligation would be very different from the one that the defendant had originally agreed (6) ….. . However, the judge stated that this would not always be the case and that if a contract contained a term, either express or implied, that even (7) ….. the event of accidental damage the obligations of the parties were to carry on, then they would not be released (8) ….. liability for breach.

DISCUSSION POINTS • There is no presumption of force majeure in the common law and a force majeure clause must be included in a contract if the parties wish to rely on it. In what way, if any, is this different from contract law in your country? • In order to rely on a force majeure clause in a contract the party seeking to rely on it must show that the event was (i) unforeseeable and (ii) beyond the control of the parties. Do you think that a terrorist attack anywhere in the world can be described these days as ‘unforeseeable’? Should a terrorist attack in any major city be treated as a force majeure event?