Guides & Advice

Ensuring cross border contracts don’t lead to crossed wires

Published: 3rd June 2020
Area: Litigation & Dispute Resolution

Ensuring cross border contracts don’t lead to crossed wires

In order to keep their head above water during the pandemic, many businesses have turned to ‘force majeure’ provisions to gain temporary financial relief.

This is the case in the UK and abroad, meaning cross border supplier contracts are often involved, potentially complicating matters because of differing interpretations. Businesses could then be faced with costly disputes in a time when the main goal is to retain money.

To avoid unwanted disagreements, it is essential that both parties fully understand the conditions and the consequences of the force majeure clause before it is invoked.

What is a force majeure provision?

A force majeure clause allows a party to temporarily put a stop to its contractual obligations, due to unforeseeable disrupting events. These events can include:

  • Natural disasters
  • Wars
  • Acts of government
  • Riots
  • Strikes
  • Pandemics

Once the situation returns to normal, the contract can then be resumed.

English law supply contracts

It is common for English law supply contracts to contain a force majeure clause; however, the term has no recognised meaning in English law. As such, whether COVID-19 and the resultant restrictions are covered will depend entirely on the specific wording of the agreement.

The wording can also determine whether the performance of the contract has to have become impossible for force majeure to be invoked, or whether it can still be invoked if there will merely be a delay or difficulties.

The affected party will also need to prove the extent to which they have been impacted by the disrupting event, as well as how they have tried to mitigate the impact where possible.

International supply contracts

Invoking a force majeure clause can become more complex when it comes to cross border contracts, as provisions vary in different jurisdictions. Unlike civil law jurisdictions, English law has no statutory provisions governing force majeure clauses, nor are they implied into contracts. Therefore, to ensure as little confusion as possible, parties should assess which law applies in their specific circumstances.

Under English law, the language of a force majeure provision will be understood in line with existing interpretation principles, with English courts focusing on the details of the language used in that particular contract.

Force majeure can undeniably be a lifeline in this current climate, but it can also lead to costly disputes when interpretation differs, something that could be more likely in international supply chains.

Unfortunately, nobody knows when this pandemic will end, so to avoid damaging contractual relationships at an already difficult time, it may be best to use negotiation to reach an outcome that benefits all parties in the supply chain.

For further guidance regarding force majeure, contact David Vaughan our commercial disputes team.

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