Force Majeure: what it is, how it works and how to rely on it?
At the start of 2020, MYBA released a COVID-19 Charter Addendum, treating
Most yacht construction contracts, MYBA MOA’s and charter agreements will typically contain a force majeure clause modifying the parties’ contractual obligations or excusing performance entirely in the event of force majeure. Typically, a force majeure regime will suspend, modify or extinguish some or all of a party’s contractual obligations for the duration that it is in place. A party will normally have to demonstrate that: (i) a defined ‘force majeure’ event has occurred, (ii) such force majeure event is beyond the party’s reasonable control, (iii) this event has prevented or delayed performance of some or all of its obligations and (iv) the party has complied with any relevant notification requirement (within x days of the force majeure event occurring). The correct service of notice is a common area of contention by parties seeking to avoid being bound by a force majeure regime. Commonly, the event will be defined as an “unforeseeable event” “beyond the party’s reasonable control” “which prevented or delayed performance of a contractual obligation”, but the clause should also give specific examples of force majeure events. The English Courts tend to adopt a narrow interpretation of force majeure clauses and generic wording might be unenforceable and
not justify failed or delayed performance unless that specific event was contemplated in the contract and was causative of the delay.
COVID-19 disease as a force majeure event and prompting the parties, if either party is directly prevented from performing its obligations under the agreement, to discuss in good faith for a set period of time in order to mitigate the effects of such occurrence on the performance of the agreement. However, the force majeure provisions of the MYBA Charter Agreement should be refreshed, not with COVID-19 in mind but as a stand-alone provision which does not seek, as an objective, to preserve the charter but to recognise in a particular set of circumstances the right thing to happen is that everyone drops hands and says that circumstances have arisen, and those circumstances must be keenly considered, which allows more liability for non- performance to be excused. The consequences of a force majeure clause being invoked must take into account the special circumstances of a superyacht charter. For example, what happens if the yacht has been positioned to start a charter? Arguably the charterer should pick up those costs. What about the food and beverage that has been ordered? It’s not straightforward, but certainly the addenda currently in circulation are problematic. But first we need to understand what force majeure is.
Since the COVID-19 pandemic was declared there has been unavoidable recourse by the parties to rely on force majeure clauses to justify delays in performing the contract, but whether a party is excused on account of COVID-19 delays or other unforeseeable events will depend on what the force majeure clause provides. In most civil law jurisdictions, force majeure operates by law as a statutory remedy and regardless of whether the specific event being invoked is contemplated in the contract. The rationale of most civil law jurisdictions relies on the assumption that a party should not be held at fault for events which are outside its control and could not been foreseen when the contract was signed. However, if your contract is under English law, force majeure clauses only assist parties to the extent they have been provided for in their contracts, there being no overlaying statutory concept of force majeure.
As it has now been over a year since the COVID-19 pandemic was declared, the parties might struggle to justify delayed performance on account of events which are no longer unforeseeable and on account of which each party would be expected to have put in place arrangements to minimise the effect of delays. Consider carefully what your contract provides or what you need to review on a contract negotiation.
Force majeure is a ‘creature of contract’ under English law.
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