Showing posts with label What is Force Majeure?. Show all posts
Showing posts with label What is Force Majeure?. Show all posts

Force Majeure – When Suppliers Cannot Fulfil Their Contracts

Commercial contracts are designed to provide certainty, yet even carefully planned supply arrangements can be overturned by events nobody expected. Floods, conflict, government restrictions, cyber attacks and failures of critical infrastructure may halt production or stop goods reaching customers. Suppliers can face missed delivery dates, contractual claims and heavy financial losses. At the same time, customers may see essential services, operational continuity and long-standing supply commitments placed under sudden and sustained pressure.

The scale of disruption can be extraordinary. The National Audit Office (NAO) reported that, by 31 July 2020, the United Kingdom (UK) government had awarded more than 8,600 contracts worth £18 billion in response to the coronavirus disease 2019 (COVID-19) pandemic. That purchasing programme shows how quickly procurement priorities and supply conditions can change. Widespread disruption, however, does not by itself decide whether any individual supplier is entitled to contractual relief.

Under English contract law, obligations do not ordinarily disappear because performance becomes inconvenient, expensive or commercially unattractive. Force majeure protection usually depends on expressly agreed terms, including the events covered and the effect those events must have on performance. Where no applicable clause exists, the separate doctrine of frustration may occasionally discharge a contract, but its threshold is demanding. Ordinary market pressures and preventable operational problems generally remain commercial risks for whoever accepted them.

The distinction between external events and supplier responsibility is therefore essential. An unexpected government prohibition might stop a particular shipment altogether, while rising freight charges merely make delivery less profitable. A major storm could close a manufacturing site, yet poor maintenance or a failure to investigate available alternatives may seriously weaken any resulting claim. Contractual wording, evidence of causation, and the reasonable steps actually taken must all be examined together before reaching conclusions.

The central question is not simply whether something extraordinary happened, but whether that event legally excuses the particular failure to perform. Clear notice, reliable records and proportionate mitigation often determine how a claim is assessed and whether protection applies. For procurement and contract management teams across the public and private sectors, understanding these distinctions supports fair decisions, business continuity and balanced risk allocation when established supply arrangements come under serious pressure.

What Is Force Majeure and How Does It Work?

Force majeure describes circumstances in which an exceptional event may excuse, suspend or delay contractual performance under provisions the parties have agreed. English law has no general statutory doctrine that automatically grants protection whenever disruption occurs. Instead, the contractual wording normally determines which events qualify, which obligations are affected and what relief becomes available. Suppliers therefore cannot assume that an unforeseen crisis releases them from their commitments, no matter how severe its wider economic consequences.

A typical clause identifies events beyond a party’s reasonable control, sets out notification requirements and explains the consequences of interrupted performance. Such provisions may allow extensions of time, temporary suspension or eventual termination after prolonged disruption. However, establishing a qualifying event is only the first step in the assessment. The affected party must also show that the event had the effect on its contractual obligations that the agreement requires, judged against the clause’s precise words.

Consider an illustrative £5 million supply agreement under which flooding closes the manufacturer’s only production facility and prevents scheduled deliveries. Whether additional time, suspension of liability or protection against damages becomes available depends entirely on the agreed clause, including its causation and mitigation requirements. Two contracts facing essentially identical disruption can therefore produce very different financial outcomes, simply because their force majeure provisions were drafted, negotiated and priced in different ways.

Where an agreement contains no force majeure provision, English law does not insert one merely because circumstances have become exceptional. Obligations ordinarily remain enforceable unless another contractual term, applicable legislation or the narrow common-law doctrine of frustration provides relief. Frustration may discharge future obligations where performance becomes radically different from what was agreed, but inconvenience, increased expense or reduced profitability will rarely satisfy that threshold. Careful drafting is consequently the principal source of protection.

What Events Can Qualify as Force Majeure?

Qualifying events depend on the contract, although clauses commonly list floods, earthquakes, extreme storms, fires and other natural disasters. Storm Babet illustrates the potential scale: the Environment Agency’s annual flood report recorded more than 5,000 properties flooded in October 2023, while flood defences protected approximately 97,000. A flooded warehouse might genuinely prevent dispatch, whereas a supplier whose operations were unaffected could not rely on the storm simply because it struck nearby.

Pandemics and the government restrictions that follow can disrupt production, transport and the availability of essential materials. During COVID-19, regulations closed many premises and constrained workforces for extended periods. Yet the courts consistently examined the contract rather than the pandemic itself, asking whether the specific obligation was affected in the manner the clause required. A global emergency establishes context; it does not automatically confer relief on every supplier whose costs or schedules suffered.

War, terrorism, civil unrest, sanctions and border closures may qualify where the agreement covers them, and they obstruct required performance. A sanctions prohibition might make a specified payment or shipment unlawful, while military conflict could close an essential transport corridor. Nevertheless, the affected party must identify the precise obstacle, its contractual consequences and any lawful alternative. Political uncertainty alone, without the necessary causal connection to performance, is unlikely to establish an entitlement to protection.

Industrial action, cyber attacks and failures of electricity, telecommunications or transport infrastructure deserve equally careful attention. The government’s Cyber Security Breaches Survey 2025 found that 43% of UK businesses had experienced a breach or attack during the preceding twelve months. That prevalence demonstrates operational exposure, not universal contractual relief: an incident might disable a distribution centre, while weak security controls or untested recovery arrangements could considerably undermine the supplier’s claim.

Clauses also differ in how they describe qualifying events. Some contain an exhaustive list, others a general formula such as ‘any cause beyond the reasonable control of the affected party’, and many combine both. A general formula may capture events not named individually, while an exhaustive list may exclude serious disruption the drafters did not anticipate. Express carve-outs, commonly for lack of funds or price changes, can narrow either approach significantly.

A dramatic headline therefore never substitutes for the contractual test. An event expressly listed in the clause may still fail to qualify because it did not prevent the relevant obligation, was within the supplier’s control or could reasonably have been overcome. Contract managers should read the full definition, any exclusions, and the operative wording together before accepting or rejecting a supplier’s explanation, and should clearly record how they reached their conclusion.

Beyond Reasonable Control – Who Bears Responsibility for Disruption?

Reasonable control separates genuinely external disruption from problems an organisation should manage through competent operations. An unprecedented flood may be unavoidable, but machinery breakdown after repeated ignored maintenance warnings presents a very different picture. Poor forecasting, inadequate staffing, defective stock control and negligent transport planning do not become force majeure merely because their consequences are serious. The question is whether the actual impediment lay beyond the affected party’s reasonable control at the relevant time.

The fire at the North Hyde substation in west London on 20 March 2025 illustrates the point. It cut power to more than 70,000 customers and closed Heathrow Airport for most of the following day, disrupting over 270,000 passenger journeys. The National Energy System Operator later found that a high moisture reading in a transformer component, identified in 2018, had not been addressed, and Ofgem opened an enforcement investigation into National Grid Electricity Transmission.

These technical findings do not themselves establish contractual liability or determine whether any particular force majeure claim would succeed. That assessment requires examining the affected party’s contractual obligations, control over the relevant circumstances, and available means of avoiding or overcoming the disruption.

For an airline, retailer or caterer operating at Heathrow, the outage was plainly an external event. For the owner of the failed asset, however, evidence of a known and unresolved defect would raise obvious questions about reasonable control. The same incident can therefore look very different depending on where a party sits in the chain. Procurement teams should ask who could realistically have prevented the disruption, and whether the party claiming relief was that organisation.

Even where the initiating event is external, the response matters. A business with no safety stock, relying exclusively on one vulnerable supplier, or neglecting tested recovery arrangements may struggle to prove the interruption could not reasonably have been avoided. English law does not impose an identical contingency standard on every organisation, regardless of scale, cost, or context, but it will usually examine maintenance records, risk assessments, and continuity plans closely.

Impossible, Prevented or Delayed – What Level of Disruption Is Required?

Force majeure provisions use different expressions to describe the effect required before relief arises. A clause referring to performance being ‘prevented’ generally sets a more demanding threshold than one covering performance being ‘hindered’ or ‘delayed’. Prevention ordinarily involves inability to perform the relevant obligation, rather than inconvenience or reduced profitability. Each expression must nevertheless be interpreted within the entire agreement, including any specific definitions, exceptions and remedies the parties chose.

Consider a manufacturer whose specialist production line is destroyed by fire. If the contract requires goods from that particular facility, delivery may genuinely be prevented for a substantial period. If equivalent goods could reasonably be supplied from another approved plant, the outcome may differ entirely. A temporary road closure, by contrast, might delay delivery without making eventual performance impossible, particularly where contractual deadlines and permitted transport alternatives remain reasonably flexible.

Partial performance creates further complications. A supplier able to deliver 70% of an order cannot necessarily suspend all its obligations because the remaining 30% is affected. Some clauses excuse performance only ‘to the extent’ of the disruption, while others provide mechanisms for allocation, extension, or termination. An illustrative £2 million contract could therefore generate materially different liabilities depending on whether the clause protects affected deliveries individually or permits a broader suspension of performance.

In Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 (Comm), a government drilling moratorium was among the events listed in a rig hire contract. Yet the court rejected Tullow’s reliance on force majeure because another effective cause of non-performance fell outside the clause and Tullow had failed to satisfy its contractual reasonable endeavours obligations. Identifying a qualifying event was insufficient without examining how the specific obligation became impossible to perform.

The practical distinction lies between an event that affects operations and one that satisfies the contract’s chosen threshold. Transport congestion may slow delivery without preventing it, whereas an export prohibition may preclude a particular shipment altogether. Procurement managers should compare the agreed specification, destination, completion date and permissible alternatives against what the supplier can still achieve. Relief should reflect the actual interruption established by evidence, rather than an unsupported declaration of impossibility.

Foreseeability – When an Exceptional Event Was Already a Known Risk

Foreseeability matters in force majeure disputes, but English law imposes no universal rule that every qualifying event must be unforeseeable. A contract may expressly require unexpected circumstances, exclude known risks or say nothing at all. Timing is also significant: a supplier contracting after sanctions have been announced cannot readily treat those existing restrictions as a new impediment, although a later and materially different restriction might create an obstacle the parties never contemplated.

Extreme weather shows why simple conclusions are dangerous. The Met Office recorded twelve named storms during the 2023–2024 season, the highest number since storm naming began in 2015. That history makes seasonal disruption a recognisable planning consideration, but does not mean a particular severe flood was within an individual supplier’s reasonable control. Contract wording and the practical opportunities for precaution remain decisive when entitlement is assessed against the agreed clause.

Pricing is closely connected with foreseeable risk. If a supplier agrees a fixed price despite known energy volatility or constrained material availability, later increases normally remain its responsibility unless the contract provides otherwise. An illustrative £10 million agreement may become considerably less profitable without becoming legally impossible. Buyers and suppliers should therefore distinguish price-adjustment provisions, hardship arrangements and force majeure clauses when negotiating how exposure to changing conditions will be shared.

Proving Force Majeure – Causation and the Burden of Evidence

A party invoking force majeure ordinarily bears the burden of proving the facts needed to obtain relief. Evidence must show more than the existence of a storm, cyber attack or government restriction; it must connect that event to the obligation said to be affected. Relevant records include production reports, delivery schedules, access restrictions, transport cancellations, correspondence and contemporaneous decisions explaining why agreed performance could not continue in the manner the contract required.

Chronology often determines a claim’s strength. Procurement teams should establish when the event began, when the supplier became aware of its consequences and whether performance had already fallen behind. A missed delivery predating the alleged disruption may reveal an independent default. Similarly, a supplier whose output had been falling for months cannot necessarily attribute the entire shortfall to a later exceptional event without identifying the additional consequences that event actually caused.

Concurrent causes can make the analysis especially difficult. In Seadrill, Tullow terminated its contract for the West Leo drilling rig in December 2016, relying on a moratorium affecting a disputed maritime area. The court found that the Ghanaian government’s refusal to approve drilling in another field, which was not a force majeure event, was also an effective cause. Seadrill obtained judgment for more than 250 million United States (US) dollars.

Mr Justice Teare emphasised that whether a force majeure event must be the sole effective cause is ultimately a question of construction of the particular clause, so Seadrill does not establish a universal rule. In Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102, the Court of Appeal similarly held that the wording of that clause required the charterer to show it would have performed but for the qualifying event.

The event in Classic Maritime was the collapse of the Fundão dam in Brazil on 5 November 2015, which halted iron ore pellet production at the Samarco mine. Because a slump in steel demand meant the charterer would not have shipped the cargoes anyway, it could not rely on the clause. The Court of Appeal awarded the shipowner substantial damages of approximately US$19.87 million, overturning an earlier award of nominal damages.

Evidence should also address reasonable alternatives. If a transport route closed, were other carriers available? If machinery stopped, could approved subcontractors or alternative sites meet the specification? A supplier might document an illustrative £250,000 of additional freight costs, but such figures quantify disruption rather than prove entitlement. Quotations, contingency assessments and correspondence with alternative providers become particularly important where the customer challenges whether reasonable endeavours were genuinely used.

Notification Requirements – When Failure to Give Notice Removes Protection

Force majeure clauses often require prompt written notification once an event occurs or its effect on performance becomes apparent. The notice may need to identify the event, the affected obligations, the expected duration, proposed mitigation and supporting documentation. Some agreements prescribe particular email addresses, named recipients or delivery methods. These details should be followed carefully, because informal telephone discussions may not satisfy an expressly required contractual notice procedure, however genuine the disruption.

The consequences of late notification depend on the wording. Where timely notice is clearly expressed as a condition precedent to relief, non-compliance may defeat the claim even though genuine disruption occurred. Other clauses impose a notification obligation without making punctual notice an absolute prerequisite, so that late notice may give rise only to a claim in damages. It is therefore inaccurate to suggest that every delayed notice automatically removes force majeure protection.

Continuing communication matters as much commercially as the initial notice. A supplier should provide revised delivery forecasts, explain alternative sourcing enquiries and report when production or transport resumes, particularly where the contract requires periodic updates. For a public authority dependent on medical supplies or emergency repairs, early warning allows continuity arrangements to start. Withholding information until deadlines have passed can intensify operational losses and provoke avoidable disputes over responsibility.

A reliable evidence trail should include dated notices, proof of receipt, internal escalation records, photographs, relevant official orders and written assessments of alternative performance. Contract managers should acknowledge receipt promptly without prematurely accepting that a qualifying event has occurred, and should equally avoid automatic rejection before examining the clause and the circumstances. Clear documentation, proportionate enquiries and timely decisions reduce uncertainty while preserving both parties’ contractual rights during prolonged disruption.

Mitigation and Reasonable Endeavours – What Must Suppliers Do?

A supplier facing force majeure must consider whether reasonable measures can prevent, reduce or overcome the disruption, particularly where the contract imposes that obligation expressly. Mitigation may involve alternative manufacturers, substitute transport routes, revised production schedules or temporary changes to working arrangements. The nature and extent of a reasonable endeavours obligation depend on its wording and the circumstances, including the expenditure reasonably required, the resources available and the parties' respective interests where relevant to the contractual obligation.

Alternative sourcing is frequently the first practical consideration. A manufacturer dependent on one component supplier might investigate approved distributors, alternative materials or additional production capacity. Replacement goods must still satisfy contractual specifications, safety standards and regulatory requirements. A cheaper or immediately available substitute is not necessarily acceptable where the customer has contracted for particular materials, technical characteristics or manufacturing processes that cannot lawfully or contractually be changed without its agreement.

Proportionality also shapes the assessment. Using illustrative figures, a supplier facing a £50,000 delivery obligation might reasonably pay £5,000 for additional freight, whereas an alternative costing £200,000 raises materially different questions. Reasonable endeavours do not invariably require unlimited expenditure, acceptance of substantial losses or abandonment of contractual rights. In Seadrill, however, the court considered that Tullow should have used the idle rig on available work, even though that work was less profitable.

The Supreme Court clarified an important limitation in RTI Ltd v MUR Shipping BV [2024] UKSC 18. MUR had agreed to carry monthly bauxite cargoes from Guinea to Ukraine, with freight payable in US dollars. After US sanctions were imposed on RTI’s parent company, Rusal, in April 2018, MUR suspended performance. RTI offered to pay in euros and cover any conversion costs, but MUR declined, and the Supreme Court ultimately upheld its position unanimously.

The Court held that reasonable endeavours did not require acceptance of non-contractual performance without sufficiently clear wording. The judgment reinforces the difference between overcoming disruption and rewriting the bargain. Suppliers should pursue practical alternatives that allow performance as contracted, while customers should recognise that such obligations do not automatically authorise different payment arrangements, specifications or delivery terms. Where change is commercially desirable, a properly documented variation remains the safer route.

Rising Costs and Supply Shortages – When Commercial Hardship Is Not Enough

Commercial hardship is among the most misunderstood aspects of force majeure. Inflation, energy price spikes, currency movements and material shortages may sharply reduce profitability without excusing performance. According to revised Office for National Statistics data, UK producer input prices rose by 24.1% in the year to June 2022. Such pressure is exceptional, yet increased expenditure does not by itself establish impossibility or satisfy a typical force majeure provision.

Construction offers a particularly vivid example. The government’s monthly building materials statistics recorded a 23.5% annual increase in the ‘All Work’ material price index in August 2021, with imported plywood up 78.4% and fabricated structural steel up 74.8%. Over the year to December 2021, repair and maintenance materials rose by 23.2%, a direct concern for housing associations and local authorities managing fixed-price responsive repairs and planned maintenance contracts.

The courts have long resisted treating such increases as force majeure. In Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm), Total argued that soaring gas prices made continued supply under a long-term agreement uneconomic. The Commercial Court rejected that argument, holding that performance becoming dramatically more expensive is not a ground for relief. Fixed-price suppliers ordinarily carry the risk of adverse market movements unless the contract shifts it.

The 2021 carbon dioxide shortage shows how such pressures are usually resolved commercially instead. CF Fertilisers halted production at its Ince and Billingham plants in September 2021 because high natural gas costs had made operations unprofitable, interrupting a major source of food-grade carbon dioxide. The government provided limited support for three weeks while customers negotiated new supply contracts, illustrating renegotiation rather than contractual excuse as the practical answer to hardship.

The pandemic produced similar lessons in public procurement. The NAO reported that exceptional market conditions increased the cost of purchasing personal protective equipment (PPE) by approximately £10 billion when compared with 2019 prices. The Department of Health and Social Care (DHSC) faced intense international competition, limited availability and rapidly rising prices. That estimate reflects higher purchase prices, not a judicially established loss, and does not show any supplier was legally unable to perform.

Hardship provisions, indexation arrangements and price-adjustment clauses offer more appropriate mechanisms for managing cost pressures. They may permit renegotiation, revised charges or termination when specified economic thresholds are exceeded. Their operation differs fundamentally from force majeure, which normally addresses impediments to performance rather than declining profitability. An illustrative £2 million equipment contract facing an extra £400,000 in materials, energy and freight costs would usually depend on such mechanisms, not force majeure.

Cyber Attacks and Infrastructure Failure – Modern Disruption Under Established Principles

Cyber incidents now rank among the most serious causes of supply interruption in the UK. Jaguar Land Rover (JLR) halted production at its UK plants from 1 September 2025 for around five weeks after a cyber attack. The Cyber Monitoring Centre (CMC) estimated the UK financial impact at £1.9 billion, within a range of £1.6 billion to £2.1 billion, describing it as the most economically damaging cyber event yet to hit the country.

The consequences cascaded through the supply chain. The CMC estimated that more than 5,000 UK organisations were affected, many of them suppliers and dealers dependent on JLR’s production. On 28 September 2025, the government announced a UK Export Finance guarantee for a commercial loan to JLR, expected to unlock up to £1.5 billion and repayable over five years, to help it support those suppliers. For many lower-tier suppliers, the initial disruption originated outside their own operations. Whether that disruption entitled them to contractual relief would nevertheless depend on their individual agreements, the consequences for performance and the reasonable alternatives available.

Retail suffered similarly. Marks and Spencer (M&S) suspended online clothing orders for around seven weeks after a cyber attack in April 2025. M&S initially estimated a £300 million hit to operating profit before mitigation, later reporting £324 million in lost sales and receiving £100 million in insurance proceeds. The episode shows that insurance and business continuity planning, rather than force majeure, often determine how much of the loss is ultimately recovered.

Public services are equally exposed. A ransomware attack on Synnovis, the pathology partnership serving King’s College Hospital and Guy’s and St Thomas’ National Health Service (NHS) Foundation Trusts, began on 3 June 2024. NHS London later reported 10,152 acute outpatient appointments and 1,710 elective procedures postponed at the two trusts, and Synnovis estimated its own direct losses at £32.7 million, showing how one provider’s incident can disrupt essential public services.

Whether a cyber attack qualifies as force majeure depends on the clause and the evidence. Some contracts list cyber incidents expressly; others exclude events attributable to inadequate security, unpatched systems or failures to follow recognised standards. A supplier hit by a sophisticated attack despite robust controls stands in a very different position from one that ignored warnings. Contract managers should therefore request evidence of security controls, recovery testing and incident response before accepting such claims.

Subcontractors and Supply Chain Failure – Can Disruption Be Passed Down the Chain?

Complex supply chains create difficulty when disruption originates beyond the organisation holding the principal contract. A supplier may depend on specialist manufacturers, logistics providers, technology partners or overseas material producers. Difficulties those organisations experience do not automatically release the principal supplier from its obligations. The decisive questions concern the agreed allocation of risk, the definition of force majeure and whether the subcontractor’s failure actually prevented performance of the principal contract.

Back-to-back provisions can reduce uncertainty by aligning obligations between customers, principal suppliers and subcontractors, covering delivery deadlines, notification, liability limits and qualifying events. However, identical wording is not always achievable or sufficient. A principal supplier might remain liable to its customer even after receiving relief from its own subcontractor, particularly where the customer-facing agreement offers narrower protection or demands more extensive mitigation. Gaps between the two contracts are where unrecoverable losses typically accumulate.

The DHSC’s pandemic experience demonstrates the exposure created by international supply dependence. The NAO reported that, by January 2022, PPE contractual commitments totalled approximately £13.1 billion, including £2.5 billion paid to suppliers before delivery. Exceptional global demand exposed purchasing organisations to delivery risk and substantial advance commitments, showing why advance payment terms, quality inspection and supplier financial strength deserve close scrutiny before public money changes hands.

Supplier due diligence should therefore extend beyond the immediate contracting organisation. Procurement teams should examine critical subcontractors, manufacturing locations, alternative sources, stockholding arrangements and single points of failure, including shared technology platforms. Requiring early notification of subcontractor disruption can provide valuable time to protect essential services. Effective resilience depends on identifying vulnerabilities before disruption occurs, rather than assuming responsibility can be transferred whenever another organisation in the chain encounters difficulty.

Suspension, Extensions and Termination – The Contractual Consequences

A valid force majeure claim may suspend certain obligations, extend delivery deadlines or excuse liability for specified failures, depending on the contract. Such protection does not necessarily release every obligation or end the agreement. A supplier prevented from delivering goods for fourteen days might receive a corresponding extension while remaining responsible for unaffected services. The precise consequences depend on the contractual relief mechanism and the extent of disruption actually established.

Suspension raises important financial questions. An illustrative £3 million contract might provide for monthly payments of £250,000, yet a temporary interruption does not settle whether those payments should continue. Some agreements suspend payment for undelivered services, while others preserve standing charges or require payment for completed work. The treatment of deposits, advance payments, partially delivered goods and unavoidable operating costs should be examined before any financial adjustment is agreed.

Prolonged disruption may activate express termination rights. Many contracts permit termination after thirty, sixty or ninety consecutive days of qualifying force majeure, although no universal statutory period applies. Termination rights may belong to either party or depend upon the importance of the affected obligations. Before serving notice, contract managers should verify the applicable threshold, how the disruption period is calculated, any procedural requirements and whether the contract offers an opportunity to restore performance.

Termination also raises questions about accrued rights, damages and outstanding liabilities. Force majeure relief will not necessarily extinguish payment obligations that arose before the disruption, or excuse breaches unrelated to the qualifying event. Depending on the agreement, termination may require the return of equipment, transfer of records, settlement for completed work or assistance with replacement arrangements. Clear exit provisions help prevent an operational emergency from becoming a prolonged and expensive commercial dispute.

Customers should also consider their own position during suspension. A public body cannot simply wait while a supplier’s force majeure period runs if residents, patients or service users depend on continuity. Interim arrangements, such as temporary substitute suppliers or reprioritised deliveries, should be documented carefully so that they do not inadvertently waive rights, amount to an unplanned variation or breach the procurement rules governing additional or replacement purchasing.

Force Majeure Versus Frustration – Two Different Legal Protections

Force majeure and frustration address exceptional disruption through fundamentally different mechanisms. Force majeure operates through express provisions allowing the parties to define qualifying events and their consequences. Frustration is a narrow common-law doctrine that may apply where a supervening event, without relevant fault, makes contractual performance impossible, unlawful or radically different from what was originally undertaken, having regard to the contract and allocation of risk. It requires no expressly drafted clause.

The doctrine considers whether the parties have already allocated responsibility for the relevant risk. Where contractual provisions adequately address an event and its consequences, frustration generally has little room to operate, and the House of Lords in Davis Contractors Ltd v Fareham Urban District Council confirmed that unexpected difficulty and additional cost are not enough. Unlike force majeure, frustration discharges the contract automatically and entirely; it cannot temporarily suspend obligations while performance is restored.

The pandemic tested that last point directly. In Bank of New York Mellon (International) Ltd v Cine-UK Ltd [2022] EWCA Civ 1021, cinema tenants argued that rent should not be payable while COVID-19 regulations forced closure. The Court of Appeal rejected every defence, holding that the leases allocated the risk of being unable to use the premises to the tenants. The High Court had earlier found no English doctrine of temporary frustration.

A further example arose in Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch). The agency argued that the UK’s withdrawal from the European Union would frustrate its 25-year lease, which ran to 2039 without a break clause and carried obligations of around £500 million. The High Court rejected both its common-purpose and supervening-illegality arguments, and the agency later settled the dispute by agreeing a sublease.

Self-Induced Frustration – When the Obstacle Is of a Party’s Own Making

The doctrine of frustration will not ordinarily assist a party where the alleged frustrating circumstances arise from its own relevant decisions or conduct. English courts distinguish genuinely supervening events from circumstances attributable to contractual choices, preventable failures or voluntarily assumed risks. Whether frustration arises depends on the entire contractual context, including the available alternatives and the extent to which responsibility for the disruption has already been allocated between the parties.

The leading illustration is J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1. Wijsmuller agreed to transport a drilling rig using either of two specialist vessels. After Super Servant Two sank in January 1981, Wijsmuller argued frustration, but it had already allocated Super Servant One to other contracts. The Court of Appeal held that the impossibility resulted from Wijsmuller’s own election, so the contract was not frustrated.

The principle has obvious procurement relevance. A supplier that commits limited capacity to several customers and then cannot serve one of them after a breakdown may find that its allocation decision, not the breakdown, is treated as the operative cause. Similar reasoning appears in force majeure clauses through the reasonable control requirement. Contract managers should therefore ask what choices the supplier made before and after the event, and why it made them.

When a Contract Is Frustrated – Legal and Financial Consequences

When frustration occurs, the contract is discharged from further performance automatically, without either party exercising a termination right. That does not mean every financial consequence disappears. The Law Reform (Frustrated Contracts) Act 1943 provides statutory mechanisms for adjusting certain rights under contracts governed by the law of England and Wales. It applies to Crown contracts as it does to private agreements, while Scotland applies different rules and Northern Ireland has equivalent legislation.

Section 1 generally allows recovery of sums paid before discharge and provides that sums then payable cease to be payable. Where the recipient incurred expenses in performing the contract before frustration, however, the court may allow it to retain or recover an amount it considers just, up to the sums paid or payable. An illustrative £100,000 advance payment might therefore be recoverable only in part if qualifying preparatory expenditure had been incurred.

The Act also addresses valuable non-monetary benefits received before frustration. Where one party has obtained such a benefit through the other’s performance, the court may award a just sum not exceeding the value of that benefit. Partially completed construction work that remains valuable despite a project’s cancellation is a typical example. The appropriate adjustment depends on the benefit actually received, relevant expenditure and the effect of the frustrating event itself.

The 1943 Act does not apply uniformly. Section 2 gives effect to contractual provisions intended to govern frustration, allows severable and fully performed parts of a contract to be treated separately, and excludes most charterparties and contracts for the carriage of goods by sea, insurance contracts and certain contracts for specific goods that perish. Practitioners should not assume that frustration automatically produces a complete refund or a simple division of losses.

Force Majeure in Public Sector Contracts – Continuity and Accountability

Force majeure presents particular challenges for public bodies because disruption can directly affect essential services, statutory duties and public money. Hospitals, local authorities, housing providers and government departments may depend on uninterrupted supplies and specialist contractors. A legally valid supplier claim does not remove the authority’s responsibility for service continuity, so contract managers must balance contractual rights, operational resilience, value for money and the procurement rules that govern any response.

During the pandemic, the Cabinet Office issued Procurement Policy Note (PPN) 02/20 in March 2020, encouraging contracting authorities to support suppliers at risk. Measures included accelerated and advance payments and continued payment during interruption, subject to open-book information. PPN 04/20 subsequently provided guidance on continuing appropriate supplier support and preparing transition plans between 1 July and 31 October 2020. Both notes sought to preserve essential services and supply chains, without creating any automatic contractual entitlement to force majeure relief.

That experience continues to shape practice under a new statutory regime. Many public contracts now require suppliers to maintain and test business continuity plans, notify disruption early and share recovery information. Public bodies should equally recognise that relief granted informally, without a contractual basis, can create audit concerns and unhelpful precedent. Decisions should rest on documented contractual analysis, a clear value-for-money rationale and compliance with the applicable modification and transparency rules.

The Procurement Act 2023 – Modifying Contracts After Disruption

For contracts governed by the Procurement Act 2023, section 74 and Schedule 8 define when a public contract may be modified. Contractual relief for force majeure does not, by itself, authorise an otherwise impermissible change. Where disruption requires an actual modification of contractual rights, including revised payments, scope or delivery obligations, the change must comply with section 74. Applying an existing force majeure provision according to its agreed terms does not necessarily constitute a new modification, although any separately negotiated change must be assessed against the applicable statutory requirements.

Section 74 also permits modifications that are not substantial or qualify as below-threshold modifications, subject to the statutory conditions. Light touch contracts are addressed separately. Consequently, not every lawful contract modification needs to rely upon a specific permitted ground in Schedule 8. Schedule 8, paragraph 4, permits changes arising from circumstances the contracting authority could not reasonably have foreseen before award, provided the modification does not change the contract’s overall nature.

It must not increase the estimated contract value by more than 50%, although that financial limit does not apply to utilities contracts. Genuinely unexpected disruption may therefore support a proportionate change, but foreseeable supply chain weaknesses are unlikely to qualify under this ground. Paragraph 5 adds a new ground where a known risk materialises without either party’s fault. A known risk is one the authority considered could jeopardise satisfactory performance but could not be addressed in the contract as awarded, and was identified, with the possibility of modification, in the tender or transparency notice.

The change must go no further than necessary, a new award must not be in the public interest, and the 50% limit applies except where the contract being modified is a utilities contract. When deciding whether a new contract would be in the public interest, the contracting authority must consider whether a replacement procurement could provide better value for money. It may also take relevant technical and operational considerations into account.

Transparency duties operate separately. Under section 75, a contract change notice must generally be published before a modification, subject to exemptions, including certain smaller changes within limits on value (10%, or 15% for works) and term (10%), and exclusions for defence and security, light touch and private utility contracts. Where a contract change notice is required and the modified contract exceeds £5 million, section 77 generally requires publication of the modified contract or the modification within 90 days, subject to the statutory exceptions applying to certain devolved Welsh authorities and procurement arrangements.

Transitional and territorial rules also matter. The Act generally governs procurements commenced from 24 February 2025, while earlier procurements and resulting contracts usually remain under the Public Contracts Regulations 2015, where regulation 72 contains comparable modification grounds. The Act is not a single regime for every UK public contract: Scottish devolved authorities follow Scotland’s own legislation, and there are Welsh and Northern Irish variations. Authorities should confirm the applicable regime before agreeing any change.

UK Contract Law and Judicial Decisions – How Courts Interpret Disruption

Across the authorities, English courts consistently emphasise contractual wording, causation and the allocation of commercial risk. They are reluctant to rescue parties from bargains that have simply become burdensome, and equally unwilling to deny relief where a clause has been properly satisfied. The leading decisions span almost seventy years, from post-war housebuilding to modern sanctions, yet the underlying reasoning has remained remarkably stable for those drafting and managing contracts today.

In Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3, contractors agreed to build 78 houses for £85,836 within eight months. Labour shortages extended completion to twenty-two months, but the House of Lords rejected a finding of frustration. Unexpected difficulty and additional expenditure had not transformed the agreed obligations into something radically different. The case remains the starting point whenever a supplier argues that changed circumstances should release it from a fixed-price commitment.

Commercial hardship received similar treatment in Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm). The dispute concerned the sale of a Bombardier executive aircraft for US$31.75 million, with a US$3 million deposit. The purchaser attempted to invoke force majeure following the global financial crisis. The High Court rejected that argument, noting that no English court had treated a change in economic or market circumstances as force majeure.

Insurance wording can matter as much as force majeure wording. In Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, the Supreme Court ruled largely in favour of policyholders on business interruption cover for COVID-19 closures. The case potentially affected approximately 370,000 policyholders across 700 policy types issued by around 60 insurers. Preliminary FCA information identified approximately 8,500 relevant claims, with an estimated aggregate value of £1.2 billion under stated assumptions. That figure was not an amount awarded by the Supreme Court.

More recently, commercial authorities have refined the approach. Seadrill confirms that a listed event will not assist where another uncovered cause also operated and reasonable endeavours were not used. Classic Maritime shows that some clauses require proof that performance would otherwise have occurred. MUR Shipping establishes that reasonable endeavours do not, without clear wording, oblige a party to accept performance other than what it contracted for.

Together, these decisions offer practitioners a consistent framework. First, identify exactly what the clause covers and requires. Second, establish whether the event actually caused the failure, and whether any uncovered cause contributed. Third, examine what reasonable steps were available within the contract as written. Finally, consider whether frustration, insurance or statutory adjustment offers a separate route. Judicial protection consistently follows the agreement rather than the scale of the crisis.

Drafting Effective Force Majeure Clauses – Preventing Disputes Before They Arise

Effective provisions begin with definitions that reflect the contract’s operational risks. Clauses should identify qualifying events, such as extreme weather, government restrictions, war, industrial action and infrastructure failure, while stating whether cyber attacks, epidemics and subcontractor disruption are included. Express exclusions for price increases, lack of funds and foreseeable operational problems are equally important. Carefully selected wording provides far greater certainty than an unrestricted list of exceptional circumstances.

The required connection between event and failure should be stated clearly. Expressions such as ‘prevented’, ‘hindered’ and ‘delayed’ establish different thresholds, and drafters should state whether the event must be the sole cause and whether the affected party must show it would otherwise have performed. Reasonable endeavours provisions should specify whether alternative sourcing, revised transport or partial fulfilment are expected, together with any limits on additional expenditure or non-contractual performance.

Notification and evidence requirements deserve equally careful drafting. A clause should set out when notice must be given, who must receive it and what supporting documentation is required, and should state expressly whether timely notice is a condition precedent to relief. Requiring regular updates throughout prolonged disruption helps customers activate contingency arrangements and discourages unsupported claims raised only after delivery deadlines have already passed, when evidence is weaker.

Financial consequences need particular attention in substantial agreements. An illustrative £5 million contract might provide extensions without additional payment, permit recovery of specified costs or suspend charges for interrupted services. The clause should address accrued liabilities, deposits, ongoing payments and damages, and define termination thresholds, notice periods and responsibilities for outstanding work or materials. Aligning these provisions with insurance cover and continuity obligations avoids gaps that neither party has priced.

Supplier-friendly provisions may allow broader qualifying events and longer recovery periods, whereas customer-friendly clauses may require stronger evidence, earlier notification and more demanding mitigation. Neither approach automatically produces better outcomes. Excessively restrictive clauses can threaten supplier viability, while unrestricted relief transfers disproportionate risk to customers. Balanced drafting should reflect service criticality, supply chain resilience, insurance arrangements and each party’s realistic ability to control or recover from disruption.

Managing Supplier Claims – A Practical Procurement and Contract Management Approach

Effective claims management begins when a supplier reports circumstances affecting performance. The customer should acknowledge the notification, identify the relevant agreement and review the precise force majeure provisions before taking a substantive position. Contract managers must establish which obligations are affected, whether the event qualifies and whether notice requirements have been met. Initial acknowledgement should be worded so that it does not inadvertently accept entitlement or waive contractual rights.

Supporting documentation should establish the event, its duration and its connection to the failed performance. Appropriate evidence may include official restrictions, production schedules, transport records, photographs, subcontractor correspondence, security incident reports and contemporaneous operational logs. The customer should also check whether difficulties existed before the alleged event. Where evidence is incomplete, proportionate requests for clarification are preferable to unsupported assumptions, especially where significant liabilities or essential public services are involved.

Mitigation plans should be assessed alongside immediate operational needs. A hospital awaiting critical equipment, or a housing provider facing a stalled repairs programme, may need alternative suppliers, temporary substitutes or revised priorities before any legal dispute is resolved. Contract managers should weigh service continuity, inventory, quality requirements and the cost of emergency purchasing, while ensuring replacement arrangements respect existing commitments, procurement legislation and delegated financial authority.

Formal decisions should record the contractual interpretation, evidence considered, mitigation assessment and reasons for accepting, partially accepting or rejecting relief. Where disagreement persists, escalation, negotiation, mediation or the contract’s dispute resolution procedure may provide an appropriate route. Premature acceptance can surrender valuable protections, while unjustified rejection may create additional liabilities and damage relationships. Documented, proportionate decisions preserve accountability without allowing legal disagreement to overwhelm operational continuity.

Summary – Exceptional Circumstances Do Not Automatically Remove Contractual Obligations

Force majeure provides valuable protection when exceptional circumstances genuinely interfere with performance, but it does not automatically excuse commercial commitments. English law requires parties to establish entitlement through the provisions they actually agreed to. Natural disasters, pandemics, conflict, cyber attacks, and government restrictions may qualify, but the mere existence of such events is never sufficient on its own. Contractual wording, causation and the real consequences for performance remain central to every assessment.

The line between unavoidable disruption and ordinary business risk is particularly important. Rising costs, reduced margins, labour shortages and subcontractor difficulties do not automatically justify suspension or termination, as the construction materials surge of 2021 and the energy shocks that followed demonstrated. Suppliers must show how qualifying circumstances affected their obligations and whether reasonable alternatives existed, while preventable failures, including known and unresolved defects, may undermine protection entirely.

The courts have applied these principles consistently. Davis Contractors and Tandrin Aviation show that hardship is rarely enough, Seadrill and Classic Maritime demonstrate the importance of causation, and MUR Shipping confirms that reasonable endeavours operate within the contract as written. The Super Servant Two adds that self-induced obstacles cannot frustrate a contract. Together, these authorities explain why extraordinary events must be assessed against enforceable obligations rather than commercial expectations.

For public bodies, the Procurement Act 2023 adds a further layer. Where supplier relief requires modifying the existing contract, the change must comply with the applicable procurement legislation. The known-risk modification ground additionally requires the risk and possibility of modification to have been identified in the relevant tender or transparency notice before contract award. Transparency duties then follow. For private sector buyers, recent cyber incidents carry an equally clear lesson: insurance, continuity planning and supply chain visibility often matter more than the force majeure clause itself.

Ultimately, successful contract management requires a balanced understanding of legal entitlement and commercial reality. Customers should not accept unsupported claims, but neither should they dismiss genuine disruption without examining the agreement and the evidence. Suppliers must recognise that contractual protection carries responsibilities as well as rights. Clear risk allocation, proportionate mitigation and transparent communication allow organisations to navigate exceptional events without sacrificing certainty, essential services or long-term relationships.

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Further Reading – Legislation, Judicial Decisions and Official Sources

Legislation

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