Will force majeure clauses strike the right chord during industrial action?
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With the increased threat of industrial strike action looming across the UK, we consider whether a force majeure clause can strike the right chord during such action.
As we emerged from the pandemic, many businesses had hoped to move forward and leave the struggles and difficulties of the pandemic behind.
However, industrial strike action has exacerbated staff shortages and has the potential to cause major disruption to supply chains in sectors such as health, logistics, manufacturing, and transport. Therefore, as we approach what looks set to be a winter of strike action, many businesses may be wondering how they will get through the next few months with concerns over whether:
They will have the staff to operate their business.
They will suffer operational delays and supply chain delays or unavailability of materials, and
They can comply with all their contractual obligations; and
Their business-critical trading partners can continue to do the same.
We consider whether strike action could give rise to a force majeure event and what steps businesses should take when relying on force majeure provisions in their contracts.
Step 1: Identify who is striking and what the impact is on your business
This may seem obvious but considering who is striking is vitally important. Is it:
Your supplier’s workforce?
Another third party’s workforce, which is then impacting how your business operates?
Who is instigating the circumstances giving rise to the potential force majeure event must be identified as the definition of force majeure event may exclude industrial action of your workforce or industrial action of any kind whatsoever. If so, Carla Murray and Olivia Whittaker, Partner and Solicitor in the Commercial Team at legal firm Myerson say that you may not be able to rely on the provisions of the force majeure clause and will therefore need to take alternative steps to ensure you comply with your contractual obligations to avoid being in breach of contract.
Step 2: Identify what is a force majeure event
Identify whether your contracts have a detailed definition of force majeure; force majeure events typically can be natural events (fire, flood, earthquakes etc.), human events (wars, invasions, strikes etc.) and other identified industry-specific risks or whether they simply refer to “circumstances outside your control” and ascertain whether strike action potentially comes within the definition of force majeure event.
Some force majeure clauses may name ‘industrial action’ or ‘strikes’ as a specific event allowing a party to suspend the performance of its affected obligations, whereas others may lack this wording and force parties to rely on references to events which indirectly arise due to industrial action, such as ‘staff shortages’ or ‘default of suppliers’.
In the latter case, it is important to consider whether staff shortages or supplier defaults are the actual cause of a party being unable to perform its obligations; that is, staff shortages or supplier defaults should not be a mere “inconvenience” or “added logistical barrier”, otherwise that party may not rely on relief under force majeure.
Important Note: There is no concept of force majeure under English law, so if your contract does not have explicit written terms dealing with this subject, the concept of force majeure cannot be implied in your contractual relationship.
Step 3: Analyse what the clause says and its effect
Although typically, force majeure clauses will permit a party to suspend the performance of its obligations under a contract. You need to consider whether the contract contains detailed provisions on what will happen should a force majeure event occur.
Although force majeure clauses are considered by many to be a standard “boilerplate” clause, the wording of force majeure clauses can vary in significant ways from contract to contract, so an in-depth analysis of what rights your business has or what obligations your business may be under in each affected contract is an important step.
To rely on force majeure, a business must be able to prove that:
A force majeure event has arisen.
This event has prevented or delayed the business’ performance of the contract.
Their part or non-performance was due to circumstances beyond their control, and
there were no reasonable steps that the business could have taken to avoid or mitigate the event or its consequences.
Some force majeure clauses may only allow a party to rely on them where the force majeure event makes the performance of certain obligations (which may be stated within the clause) impossible and, therefore, may be very restrictive in their application. Others may allow for relief where events “hinder” the performance of the obligations.
A party should also consider whether there are reasonable steps they could take to prevent the event from occurring in the first place. In the case of industrial action, this could be a hurdle in scenarios where the affected party has a direct relationship with the relevant trade union and, therefore, could have taken reasonable steps to negotiate an end to the strike (or even avoid it completely).
Step 4: Continue to assess evolving circumstances.
Companies that are successful in relying on force majeure clauses constantly monitor what is and what is not possible for their businesses to do on an ongoing basis. Due to the uncertain nature of a strike, businesses need to be able to adapt to changing circumstances. More force majeure clauses may need to be activated with different customers or suppliers or activated for different obligations. It is, therefore, critical to identify specifically what is preventing your business from operating as normal and at what point you expect normal services to recommence.
Companies should also assess whether they have introduced measures for operational, purely financial, or a mixture of several reasons and analyse these against the wording of the force majeure clause.
Step 5: Check for any procedural requirements.
Prudent negotiators of contracts would not only specify limited events which count as reasonable force majeure events but would also require that the party seeking to rely on the same meets certain minimum requirements, such as:
Promptly notify the other party of the existence and effect of the force majeure event.
demonstrating causality between the existence of the force majeure event and the company’s inability or hindrance in performing its obligations; and
Evidence that the business cannot perform its obligations despite using its reasonable endeavours to mitigate the effects of the force majeure event.
A requirement to mitigate the effects of the force majeure event implicitly requires that a business has adequately prepared itself for adverse issues which it may face, such as via a business continuity or disaster recovery policy.
Ensure that you comply with any notice requirements specified in the clause or elsewhere in the contract, even if it is difficult to do so amid the threat of a contract or commercial relationship breaking down.
Important note: be prepared to defect the content and execution of your company’s disaster recovery plans and use of second and third-tier suppliers.
To conclude, the reliance on force majeure clauses is increasingly relevant in the wake of the pandemic, the ongoing war between Russia and Ukraine and now a potential winter of strike action; however, not only will businesses need to have an awareness and understanding of the force majeure clauses in their current contracts, but also an appreciation as to how such clauses are interpreted against an evolving landscape of commercial disruption and potential force majeure events.