Review ‘overlooked’ force majeure clauses, firms urged
Lawyers at Philip Lee say that many Irish businesses are revisiting force majeure clauses in their contracts in the light of the recent conflict in the Middle East and its impact on shipping routes and energy markets.
The firm says that disruption in the Strait of Hormuz has particularly affected the energy and chemicals sectors, both of which supply key materials to the construction sector.
In an analysis on the firm’s website, its lawyers described force majeure clauses as “an often-overlooked” contractual provision.
They explain that, under Irish law, force majeure is not a standalone legal doctrine, and its effect depends entirely on the wording of any given contract.
Unforeseen events
“In practice, clauses addressing force majeure are designed to excuse or suspend contractual obligations where unusual or unforeseen events occur that are outside of a party’s control and prevent or hinder the performance of a contract,” the Philip Lee lawyers state.
Examples includes the outbreak of a war, acts of terrorism, the imposition of sanctions or an embargo by one country against another, and the occurrence of natural disasters such as an earthquake.
The lawyers say that a careful examination of the wording of the clause is needed to determine whether the current conflict will trigger an event of force majeure. Matters for consideration would include:
- Does the force majeure clause in the contract expressly include ‘war’, ‘hostilities’, ‘sanctions’, ‘supply-chain disruption’ or words with similar effect?
- Has the performance of the contract become impossible, been hindered, or merely become more expensive or inconvenient (the latter will generally not be sufficient for sustaining a force majeure claim)? and
- Has the affected party taken reasonable steps to mitigate the impact of the event?
‘Clear causal link’
Philip Lee’s analysis says that a party seeking to rely on a force majeure clause must demonstrate a “clear causal link” between the triggering event and its inability or material difficulty in the performance of its obligations under a contract.
The firm’s lawyers say that the current conflict may have particular implications for Irish businesses involved in international trade, manufacturing, transport, construction, pharmaceuticals, technology, and energy-intensive industries generally.
“Delays in shipping, the imposition of sanctions and fuel-price volatility could all give rise to contractual disputes in the months ahead,” they state.
Price-adjustment clauses
The lawyers urge employers, contractors, and sub-contractors to “proactively” review their commercial agreements to identify the scope of existing force majeure clauses and the specific wording used, as well as notice requirements, timing obligations, and termination rights.
Philip Lee points to the drafting of price-adjustment clauses in construction contracts as another area of focus, adding that such clauses would affect any increases in the costs of fuel and materials.
“For many businesses, the question is no longer whether geopolitical events can affect contractual performance but whether their contracts are prepared for when they do,” the firm’s lawyers conclude.