Brexit force majeure

Brexit is currently causing delay and disruption for various businesses. Could Brexit constitute a force majeure event in the context of a commercial supply contract? What if your contract doesn’t cover force majeure?

The first point to note is that a party will only be able to rely on force majeure if there is a force majeure clause in the contract. The purpose of a force majeure clause is to excuse one or both parties from performing obligations under the contract following the occurrence of certain events that are outside the parties’ control. The exact wording of the clause is crucial in determining whether the clause can be invoked in relation to any particular event.

If you do have a force majeure clause, will it cover Brexit?

If the clause defines the force majeure events as being events outside the parties’ control, it is likely to be difficult to invoke the clause on the basis of Brexit.

This is because an event is only outside a party’s control if the party has taken all reasonable steps to avoid its operation or mitigate its results. If Brexit was a possibility when the contract was entered into, it could be argued that the parties could and should have planned for its effects.

Even if the wording of the clause means Brexit can potentially fall within the definition of a force majeure event under the clause, the party seeking to rely on it will also need to demonstrate that it was the sole cause preventing them from performing their obligations under the contract. This is likely to be a tough hurdle to overcome.

If Brexit has made the contract more onerous or less profitable (due to currency fluctuations, for example), but does not prevent a party from performing the contract, that will not be enough to constitute a force majeure event.

What if you don’t have a force majeure clause?

In the absence of any force majeure clause in a contract, parties sometimes seek to argue that the contract has been frustrated – impossible to perform. An event giving rise to frustration will release both parties from further performance of the contract. However, a claim that Brexit is a frustrating event is likely to be challenged on the ground that it was an event that was within the contemplation of the parties at the time the contract was formed. It might also be argued that the contract is not impossible to perform, merely more expensive to perform.

The verdict

In summary, it is unlikely that force majeure clauses will assist in terms of the impact of Brexit, but this is of course subject to the precise wording of the clause, which needs to be examined carefully in each case. In addition, businesses that are currently in the process of negotiating commercial supply contracts should consider what protection they may be able to build into those contracts for any disruption that might arise in the future.

Despite a trade deal being signed by the EU and UK on 30 December 2020, there are still many areas of uncertainty that could have adverse consequences for businesses.

At Stephens Scown, we help businesses with these issues, so please do get in touch.