When a global event calls for frustration of contract and force majeure clauses to be revisited, it often arises out of terrible events with devastating and tragic consequences well beyond commercial impact.
At the same time, the economic fall-out for businesses needs to be carefully managed and minimised as much as possible. In the era of globalisation, interdependence and ‘just in time’ supply chains, the impact of conflict in an area as globally sensitive as the Strait of Hormuz can and will have unexpected and far-reaching consequences in businesses across the world, and the UK is no exception.
The last time that frustration and force majeure were cited with regularity was during the Covid pandemic. In essence, parties to a contract affected in some way by government restrictions or supply problems often sought ways to extricate themselves from their obligations without finding themselves in breach.
What is force majeure?
Put simply, a contractual clause absolving a party from performance of the whole or part of a contract in certain, expressly defined circumstances.
Disputes often centre around contractual interpretation. Where there is such a clause, it will be heavily scrutinised to assess the precise wording and allocation of risk. This, in turn, can affect the extent to which the parties can rely on the doctrine of frustration.
What is frustration of a contract?
A contract can be frustrated where an event which is unexpected and beyond the control of the parties, and makes the contract actually (or, sometimes, commercially) impossible to perform, or where performance would be radically different to what was intended.
In the majority of commercial contracts, war is likely to be included in a force majeure clause, which makes this a matter of interpretation. Where there is no such clause, there can even be an argument that the risk has already been allocated by implication. Moreover, where the conflict has already begun when the contract was formed, then foreseeability of the event will ordinarily thwart attempts to escape the contract.
The reality is that frustration is more likely to be needed by a party without the benefit of an express force majeure clause (indeed, where the risk is covered, frustration cannot be used). Those parties are likely to be somewhere in the supply chain far removed from the oil tankers in the Middle East. It is those parties that have a greater chance of arguing that they had not foreseen conflict as a proximate contractual risk.
Why does it matter?
A party unable to perform in time or at all, for not having goods or materials in their possession, for example, would ordinarily be in breach of contract. The damages payable could be wide ranging. By contrast, a properly drafted and invoked force majeure clause can have a similar effect to frustration, where the parties are excused from performance and, depending on to what extent partial performance has taken place, recover some or all of sums that might already have been paid.
What action should be taken?
If there is a likelihood that your business will be affected, early advice should be sought in order to avoid escalation of a costly dispute. At the same time, terms and conditions ought to be reviewed to ensure that they properly protect against unforeseen events (and, sadly, those events which are beyond control but are becoming less unpredictable).
Our solicitors work in close partnership with our clients to anticipate risk, ensuring contractual frameworks are robust, commercially aligned, and resilient in the face of uncertainty. In complex and fast-moving situations, it is not simply about resolving disputes, it is about safeguarding the continuity and long-term success of your business.
If your contracts may be affected, or you would like to review your current terms, our team is here to help. Get in touch with our Dispute Resolution team for clear, commercially focused advice tailored to your circumstances.
Key Contact
Costas Nicolaou
Dispute Resolution Partner
Costas is a Partner within our Dispute Resolution team and has built a reputation for his pragmatic approach and commitment to securing optimal outcomes for his clients.
