Volcano fallout

There are many businesses which have been unable to meet contractual deadlines because of the inability to move people and goods around, and it may take some time to sort out the legal consequences.

Companies may have to review whether their contracts adequately protect them against the consequences of this type of event.

The phrase ‘force majeure’ is generally used to describe a provision in a contract which allows one or both parties to cancel or suspend their obligation under a contract, or extend delivery time, on the happening of an event outside the control of either party.

The precise events covered by a force majeure clause will vary from contract to contract. Some clauses are very detailed, listing a wide range of events covered by the clause and others are more general.

In order to be enforceable, a force majeure clause must be specific enough to show what type of event will be covered, although clauses can be very wide.

An agreement that ‘the usual force majeure provisions apply’ would not be enforceable, because it is not clear enough, but a simple clause listing specific events and including the phrase ‘or other event beyond the reasonable control of either party’ would be.

But what about the effects of volcanoes erupting in other countries and the consequent disruption to air travel and air freight?

Such events have not generally been specifically identified in contracts made in northern Europe.

The phrase ‘act of God’ has been considered by the courts on many occasions in the last century, and it is generally accepted that they are some elementary act of nature unconnected with the agency of man, a definition which must surely include a volcano.

But where a contract contains a force majeure clause it will also usually contain, in addition to specific hazards, a general reference to other events ‘beyond the control of’ the parties which will be construed as having a broad common sense meaning.

This is important, because while the origin of the recent problem was the volcano, the force majeure in most cases will have been the closure of the airspace and consequent disruption to transport, rather than the effects of the volcano itself.

But what is beyond your control? This is a question of fact and a force majeure clause will not be a defence to a claim for negligent performance, or deliberate default.

The party who wants to rely on the force majeure clause has to prove the facts which bring the case within the clause. So if you are trying to show that you can be excused for failing to deliver goods or services on time because of the recent eruption of the Icelandic volcano, you must show: o That your clause is wide enough to cover this event; o That the volcano erupted and that UK air space was closed at the relevant time. This will be a matter of public record o That there were no reasonable steps you could have taken to comply with the contract. This is highly sensitive to the facts in each case.

Depending on the precise terms of your contract this last hurdle could be the most difficult one to jump, and this is where disputes may develop.

If someone is offering you the force majeure excuse, you need to consider whether the failure really was caused by closure of airspace, and that this is not just being used as a convenient explanation for some other problem. By way of example, closure of airspace is unlikely to have affected deliveries of goods which were already in the UK, at the date of closure of airspace, nor is it likely that goods wholly manufactured in the UK for delivery on the UK mainland will have been affected.

Where performance of a contract is dependent on the presence of a particular person who was ‘stuck’ in a luxury resort in mainland Europe, the facts need to be very carefully examined.

Some people ‘stick’ more easily than others, and here it will be a question of considering what they could reasonably have done to get themselves back to work.

Force majeure clauses of this type may be subject to the Unfair Contract Terms Act 1977, and open to challenge on grounds of unreasonableness.

This is, however, unlikely in a commercial contract, although the position might well be different in a consumer contract. Special problems may arise under the Distance Selling Regulations.

Even if you have not faced disruption to your business this time around, but could have, this would be a good moment to review exactly what your key contracts say about disruption of air travel, and how this relates to any relevant insurance cover, as you may not be so lucky next time.

o Contact: Julie Bond 01865 813609.

Web: www.manches.com