Businesses today face an increasingly unpredictable operating environment. From global pandemics and supply chain disruption to geopolitical events, cyber-attacks and extreme weather, unforeseen events can have a significant impact on contractual obligations. When these situations arise, many businesses assume they can rely on “force majeure” or “frustration” to avoid liability. However, the legal position is often more complex than expected.

What is Force Majeure?

Under English and Welsh law, there is no automatic right to rely on force majeure. Instead, force majeure is a contractual mechanism that only applies if the contract contains a force majeure clause.

A well-drafted force majeure clause typically excuses a party from performing its contractual obligations where an event beyond its reasonable control prevents, hinders or delays performance. Common examples may include:

· Natural disasters;

· War, terrorism or civil unrest;

· Government action or changes in law;

· Epidemics and pandemics;

· Strikes and labour disputes; and

· Significant supply chain disruption.

However, whether a party can rely on force majeure depends entirely on the wording of the clause. Courts will interpret such provisions strictly. A business seeking to invoke force majeure must generally demonstrate that:

1. The relevant event falls within the scope of the clause;

2. The event has caused the inability, hindrance or delay in performance specified by the clause; and

3. Reasonable steps were taken to mitigate the effects of the event.

Simply becoming more expensive or less profitable to perform a contract is unlikely to be sufficient.

What About Frustration?

Where a contract does not contain a force majeure clause, businesses sometimes look to the legal doctrine of frustration.

Frustration occurs where an unforeseen event, outside the control of the parties, makes performance of the contract impossible or transforms the obligation into something radically different from that originally agreed.

The threshold for frustration is deliberately high. English and Welsh courts are generally reluctant to find that a contract has been frustrated. Increased costs, economic hardship or commercial inconvenience will rarely be enough.

Examples where frustration may apply include:

· The destruction of a specific asset essential to the contract;

· A change in law that makes performance illegal; or

· The cancellation of an event that forms the entire basis of the agreement.

If a contract is frustrated, it is automatically discharged, meaning future obligations come to an end.

Are Your Contracts Adequately Protected?

Many SMEs operate using standard terms and conditions that have not been reviewed for several years. As recent global events have demonstrated, generic force majeure clauses may not provide the protection businesses expect.

Key considerations include:

· Does the clause cover modern risks such as cyber incidents and supply chain failures?

· Are notification requirements clear and practical?

· Is there a right to suspend performance or terminate the contract after a prolonged disruption?

· Does the clause allocate risk fairly between the parties?

Practical Steps for Businesses

Businesses should not wait until a crisis arises to assess their contractual protections. Regularly reviewing key commercial agreements can help identify gaps and reduce the risk of costly disputes.

A carefully drafted force majeure clause is often the best line of defence against unforeseen events. Relying on frustration alone is risky, as the courts apply the doctrine only in exceptional circumstances.

If your business is reviewing its contracts, negotiating new agreements or facing disruption that may affect contractual performance, obtaining legal advice at an early stage can help protect your position and minimise potential liability. At Berry Smith we are experts in thoroughly drafting and reviewing contracts, ensuring that our clients are protected through terms like force majeure. If you have any queries or need any assistance relating to your contracts, please do not hesitate to contact us at commercial@berrysmith.com or on 029 2034 5511.