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The Force Majeure Clause – Superior Strength Termination

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The French term force majeure, meaning superior strength in English, can be found in many supply contracts.

A force majeure clause allows both parties in a contract to agree that they are not in breach if reasons beyond their control prevent them from undertaking their contract obligations.

These reasons include war, riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion, strikes, lockouts, slowdowns, prolonged shortage of energy supplies, and acts of state or governmental action, which prohibit or impede any party from performing its respective contract.

The clause suspends the parties’ obligations during a force majeure event, however the contract has not been terminated. It is standard to state a certain time period for the duration of the force majeure event, and following expiry of that time period, then the contract can be terminated.

The most important aspect of terminating following a force majeure event is that it must be the sole reason for the termination. This is supported by a recent High Court decision.

In this case X was trying to terminate by relying on the force majeure clause as they could no longer use an oil rig due to a faulty oil storage unit. This was following a decision by the Government that drilling could not take place in the area that X owned.

Y then argued that the real reason that X was terminating was due to the increase in the hire price of the oil rig, and that there was evidence of internal discussions about how to manipulate the force majeure clause in X’s favour.

The High Court held that there were two reasons that X wished to terminate; territorial dispute and the faulty oil storage unit. The first was a force majeure event, the second was not, therefore X was unable to rely on the force majeure clause.

To rely on a force majeure clause the event must be the sole reason for the termination.

The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information our commercial team would be more than happy to assist you. Please contact us at [email protected] or call us on 029 2009 5500 to speak to one of our team.