Legal Download 2.0 - Dealing with force majeure events

Earthquake activity which caused severe damage to undersea cables and military action in Palestine are both recent examples of incidents that have resulted in severe disruption to telecoms and IT services

Tags: DLA Piper Middle EastUnited Arab Emirates
  • E-Mail
By  Chris Edwards Published  February 10, 2009

Earthquake activity off the coast of Malta which caused severe damage to undersea cables and military action in Palestine which disrupted mobile telecommunications services are both recent examples of incidents that have resulted in severe disruption to telecoms and IT services. Such incidents undoubtedly impacted upon the performance of many businesses - those supplying as well as those utilising such services - and, in some cases, may have resulted in an inability for such businesses to comply with their contractual obligations.

From both a practical and risk perspective, companies need to be mindful of provisions within contracts which deal with the effects of unforeseen events or circumstances which prevent or delay performance of obligations. This article seeks to outline some of the key features, within the context of IT and telecoms transactions, which companies should be aware of when negotiating in this area.

Purpose

In general, a party that is unable to perform its contractual duties due to circumstances/events outside its control should not, in principle, continue to be held liable for performing such duties for the duration of such circumstances/events. To avoid ambiguity and potential disputes, a written contract should:

• detail what constitutes circumstances outside a party's control; and

• outline the consequences for the parties should such an event occur.

Defining a force majeure event

An event beyond the control of either party is often referred to as one of force majeure (literally meaning "superior force"). Despite the wide use of the term, derived from the French legal code, it has no accepted definition within English law. For clarity, parties to a commercial arrangement should always seek to expressly define what they consider to be a force majeure event in the context of a particular transaction. Standard wording often includes, "an event which is beyond the reasonable control of either party", followed by an indicative list of example scenarios which the parties consider may constitute a force majeure event. Typically these might include, "strike, war, riot, fire, flood, civil commotion..."

Rather than relying on standard drafting, customers and suppliers should be alive to any transaction-specific issues which might necessitate a bespoke force majeure provision. For example, a telecoms equipment supplier operating in a difficult political territory may wish to expressly state that a failure by authorities to provide appropriate licences/consents within stipulated timeframes is to be determined as an event of force majeure. In contrast, the mobile operator customer may insist on including wording to the effect that any strike action by the supplier's personnel is, under no circumstances, to be considered an event of force majeure.

Consequences

A contract should clearly state the consequences for the parties in the event of force majeure arising. At a minimum, these generally include:

• a suspension of the ‘affected’ party’s obligations for the duration of the event (or more narrowly, only those obligations actually impacted by the event);

• an obligation on an affected party to provide detailed notice (and appropriate updates) within a certain number of days to the ‘non-affected’ party outlining key aspects of the event and the likely impact upon the performance of the contract;

• an obligation on the affected party to undertake all reasonable courses of action to mitigate the effects of the force majeure event; and

• a right for either party to terminate the contract should the event continue for a specified period of time (depending on circumstances - often between three to six months).

Parties should also consider whether further transaction-specific measures are required (e.g. outlining alternative arrangements for delivery of goods; expressly detailing the mitigating steps to be taken; providing for unique consequences if the contract is terminated due to a force majeure event etc.)

Impact on contractual provisions

In the context of a contract for the provision of IT and telecoms services and/or goods, parties may wish to consider if the granting of relief upon the occurrence of a force majeure event is applicable for all contractual obligations.

A wide granting of relief to an affected party in the event of force majeure may inadvertently cover specific obligations which should reasonably continue. For example, from a supplier perspective the ability of a customer to pay for services/goods already performed/delivered is unlikely to be affected, whereas a customer is unlikely to want a supplier's obligation to perform a disaster recovery plan to be suspended. Appropriate carve-outs should be included to deal with such issues.

Local law considerations

Force majeure provisions need to be reviewed in light of local laws and regulations. For example, under English law a broadly drafted force majeure clause might be held as void for unreasonableness. Parties should seek to consult with local legal counsel where necessary to ensure provisions are valid.

Recent global events have increased the focus on the issue of force majeure in commercial arrangements, often a standard and infrequently negotiated part of contracts. Parties should assess such clauses critically to ensure they reflect the specific circumstances of a transaction as far as possible.

Chris Edwards is a Legal Consultant with DLA Piper

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code