Legal advice: Circumstances that prevent fulfilment of a contract

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Gillian Harding. Image: Woodfines Solicitors
Gillian Harding. Image: Woodfines Solicitors

Any well-drafted commercial contract will contain a range of terms and conditions that clearly set out the rights, responsibilities and obligations of each party.

As a legally binding document, parties enter into a contract in the knowledge that any contract breaches can be enforced by a court of law.

First, we will consider some types of breach of contract under UK law for which legal remedies may be available:

1) Minor breach of contract – for example, a small change is made to the goods or services provided, but this does not substantially affect the fulfilment of the contract.

2) Material breach of contract – a failure to fulfil a key part of the contract, for example one which has a detrimental impact on the goods or services expected by the receiving party.

3) Anticipatory breach of contract – one party clearly demonstrates that they don’t intend to fulfil all or part of their contractual obligations, although the contract terms have not yet technically been breached.

4) Repudiatory breach of contract – this is an extremely serious breach that may lead the injured party to terminate the contract.

A breach of contract claim, if upheld in a court of law, can help minimise the impact of the losses suffered by the injured party.

But what if the breach in question was caused by a circumstance beyond the control of the unperforming party?

From the war in Ukraine to the havoc wreaked by wildfires in recent years, large-scale manmade and natural disasters have increased in both frequency and severity over the past few decades. For businesses, this has reinforced the importance of building protection against such risks into contracts.

The term ‘force majeure’ (from the French for ‘greater force’) refers to an event that is beyond the control of the affected party to the contract. Examples include:

  • The outbreak of war or political conflict
  • Terrorism
  • Labour strikes
  • Infrastructure failure (for example, power cuts)
  • A natural disaster (such as an earthquake, hurricane or tsunami)
  • A public health emergency (for example, the Covid-19 pandemic).

Force majeure is commonly conflated with the term ‘act of God’, although the latter term is usually only associated with natural disasters, whilst force majeure can also be used to refer to extraordinary events caused by human activity. Unlike breach of contract, however, the legal concept of force majeure is not fully recognised nor defined under English common law. You cannot simply invoke force majeure as the reason why you have failed to fulfil a contract if no clause to that effect is present.

Force majeure clauses in contracts

A force majeure clause in a contract might typically excuse the party affected by the event of force majeure from performance of their obligations to the extent that they are impacted by the event of force majeure.

In some contracts, this clause is very vague and leaves the concept of what constitutes an event of force majeure open to interpretation.

However, this approach can lead to uncertainty and potential disputes over whether an event is a force majeure event.

In other contracts, the specific events that will trigger the force majeure clause are clearly defined. Whilst this provides certainty, there is a risk that this prescriptive approach might exclude an event beyond a party’s reasonable control that leads to that party being unable to fulfil its obligations.

A good example of this was during the Covid-19 pandemic, where many businesses impacted by lockdown were unable to rely on a force majeure clause because a public health emergency was not specifically included within the list of force majeure events in their contract.

Other things which ought to be clearly outlined include a requirement on the affected party to take steps to mitigate the impact of a force majeure event and the period for which the affected party’s obligations will be suspended before the other party can terminate the
contract.

Unforeseen circumstances that prevent fulfilment of a contract – the concept of ‘frustration’

Frustration is another legal concept a party may rely on to terminate a contract. Frustration refers to an unforeseen, ‘supervening’ event that occurs after the contract has been entered into, which renders it physically, legally or commercially impossible to fulfil the contract terms.

While force majeure can suspend a party’s obligations, frustration inevitably ends the contract.

Unlike force majeure, frustration is a recognised legal concept under English law and doesn’t need to be expressly included in a contract to be relied upon. However, frustration is extremely difficult to prove and case law shows that a very high threshold of impossibility must be met before a contract is considered frustrated.

Case law

Previous cases involving force majeure and frustration of contract give interesting context.

Force majeure

European Professional Club Rugby (EPCR) entered into a contract with RDA Television, which gave RDA the media rights for two European rugby competitions, starting in 2018/19 and ending in 2021/22.

A force majeure clause in the contract provided for the termination of the agreement if a force majeure event occurred, subject to certain conditions.

Due to the Covid-19 pandemic, EPCR was forced to postpone quarter-final, semi-final and final matches of the Champions Cup and Challenge Cup. RDA therefore refused to pay its final instalment for the 2019/20 season on the grounds that it was unclear if or when the remaining matches would be held.

Despite EPCR writing to RDA and notifying the latter party that it would be holding the matches at the beginning of the next season (which is what eventually happened), RDA served notice to terminate the agreement in June 2020.

EPCR took RDA to the High Court seeking damages for what it called RDA’s ‘wrongful repudiation’.

However, the judge found that the pandemic constituted a force majeure event because the word ‘epidemic’ was listed and defined in the contract. Therefore, the High Court ruled that RDA was entitled to invoke the force majeure clause and EPCR’s claim was dismissed.

Frustration of contract

A much older case is a classic example of how strict the courts’ interpretation can be in deciding whether or not a contract has been frustrated. The Tsakiroglou case involved a shipment of groundnuts which would usually have been taken through the Suez Canal on their route from Sudan to Hamburg.

The Canal was closed to shipping traffic and the seller refused to ship the goods. The Court decided that shipping via the Cape of Good Hope was possible. It involved significant additional expense (according to the seller, a 100% increase in shipping costs), but it was not impossible to ship the groundnuts to their final destination in Hamburg.

The Court ruled that the alternate route did not render the contract fundamentally different and that the contract was not frustrated.

Expert commercial contract law advice

As this article has demonstrated, unforeseen events that prevent the fulfilment of a contract can be complex to resolve under English law.

That is why it is highly recommended to seek expert advice not only at the time of a contract dispute, but also at the drafting stage, to provide the best possible protection and avoid disputes arising later down the line.

At Woodfines, our experts have years of experience in supporting businesses, resolving contract disputes and achieving the best possible commercial outcomes. Should you wish to find out more about our services or to instruct us on a contract matter, we’d be delighted to help – so please do get in touch.

by Gillilan Harding
Senior Associate – Corporate & Commercial
Paid partnership with Woodfines Solicitors