The storms and floods mean that I can't fulfil my contract. What can I do?

Another week, another awful storm and dismal tales of flooding, storm force winds and disruption to daily life. This unprecedented tweet from Virgin Trains last night (during the height of the storms) pretty much sums it up:

https://twitter.com/VirginTrains/statuses/433653504360472577

It is also pretty sobering to note that the Thames Barrier, which was used 4 times in the 1980s, has been used almost 30 times this winter alone:

https://twitter.com/mjrobbins/statuses/433696743662694401

The unhappy news is that, for the time being at least, the storms and flooding are set to continue. Amber warnings of rain and yellow warnings of wind have been issued by the Met Office for Friday and Saturday. Therefore for many businesses, it will be critical that they check their business continuity plans and any so-called 'force majeure' clauses in any relevant contracts.

So what is 'force majeure'? It is literally translated as 'superior forces'. In other words, it is an unexpected and disruptive event that can, in certain circumstances, operate to excuse a party from its obligations under a contract. These clauses—if they exist in a contract—will be of interest to:

  • businesses which are unable to do what they agreed to do under a contract, or
  • businesses where another business, such as a supplier, is unable to do what they agreed to do under a contract.

Now this is where I do something that many lawyers would balk at: forget about any contracts in the first instance; instead, have a word with the other side and see how you can resolve any difficulties without resorting to the fine print of any contracts. Many businesses are quite happy to show their human side during challenging times, as proved by this thoughtful pub in the Euston area last night:

https://twitter.com/DoricArchPub/statuses/433694764513636352

Or indeed JCB:

https://twitter.com/JCBAgriculture/statuses/433638773167902720

But of course, this isn't always possible.

So have a look in any relevant contracts to see if a 'force majeure' clause is included. Bear in mind, however, that although many contracts between businesses will use this term, the OFT frowns upon the use of the term 'force majeure' in business to consumer contracts so it may not be that obvious to find.

You should be looking for something along these lines:

Neither party shall be liable for any default due to any act of God, war, strike, lockout, industrial action, fire, flood, drought, tempest or other event beyond the reasonable control of either party

As for a long form force majeure clause, this can be pages long. Think of a telephone book (do they still exist?) and rip out a few pages and you are some way towards a long form version of such a clause, where cheerful subjects such as nuclear, chemical or biological contamination or pandemics are mentioned in excruciating detail.

Anyhow, what do you do if you want to rely on a force majeure clause?

In practice an aggrieved party needs to prove the following:

  • the occurrence of one of the events referred to in the clause
  • that the business has been prevented, hindered or delayed from performing the contract by reason of that event
  • that the business' non-performance was due to circumstances beyond its control, and
  • that there were no reasonable steps it could have taken to avoid or mitigate the event or its consequences

Not always an easy task.

Furthermore, in order to be effective, a force majeure clause may require a party to:

  • comply with certain procedures within a specific period of time, and /or
  • give notice to the other party of his intention to rely on the clause

Even then, things may not be plain sailing. The other side may contend, for example, that the force majeure clause is invalid under legislation such as the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contracts Regulations 1999 (which deals with business to consumer relationships).

Even worse there may not even be a force majeure clause. What then?

In this case, it may be possible that the common law doctrine of 'frustration' of the contract applies.

That said, reliance on the doctrine of frustration may be in neither party's interests, for a number of reasons:

  • frustration of a contract may entitle a party to compensation for work done prior to termination and also to retain any payments previously made under the contract, even if it is not commercially appropriate
  • termination of the contract may not be in either party's interests; they may prefer the contract to be suspended for the duration of the frustrating event, and
  • there is no definite list of frustrating events and, because the doctrine has developed on a case-by-case basis, it is not always possible for a party to know whether an event would be considered by the court to be a frustrating event

So establishing frustration under English law isn't much fun, to be fair.

At the moment, businesses are simply trying to keep going. Spending hours poring over contracts may not be feasible. The key in most cases is to communicate effectively with those with whom you have contracted and to work problems through in as amicable a manner as possible. Many, many businesses are experiencing similar problems.

In the meantime, stay safe and let's hope that the weather finally starts to settle down soon.

PS It is also worth keeping an eye on the government website for policy announcements that may help your business. For example, the Prime Minister recently announced that the government will be offering relief from business rates for 3 months funded by central government (more details to be published shortly). HM Revenue and Customs (HMRC) is also looking to set up a new hotline for those who have been affected by flooding and who might being face difficulties in meeting their liabilities. HMRC will also look to offer 3 months additional time to pay—including VAT, Pay As You Earn and corporation tax.

UPDATE (7 December 2015):

In connection with the floods in Northern England and Southern Scotland,  the Environment secretary stated today in Parliament:

I know local communities will want to know what action Government will be taking to support the recovery phase. I am pleased to confirm to the House that my colleague, the Communities Secretary, will shortly be opening the Bellwin scheme for local authorities affected by floods, and that 100% of eligible costs will be met by the Government. We will be announcing support schemes over the coming days.

Since this post was written the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contracts Regulations 1999 were replaced on 1 October 2015 by the Consumer Rights Act 2015.

https://twitter.com/CumbriaCC/status/673859068855869442

https://twitter.com/DefraGovUK/status/673870541045018624

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