Virtually all contracts of importance have a ''force majeure'' clause, which in effect says that if something unpredictable happens that is of major significance and is not the fault of either party, then the party to the contract that is prevented from fulfilling its end of the deal cannot be held liable for that failure.

The force majeure clause has to be taken in context, however, as it cannot be relied on if the party to the contract would not have performed their part of the agreement in any event…if they would have defaulted anyway, the presence of a force majeure event will not come to their rescue.

When a ship owner sued under a contract to carry iron ore pellets, which the other party had failed to honour, the owner of the pellets claimed that the failure was due to force majeure, because the mine producing the pellets had been forced to stop production after a dam burst. However, the carriage rates negotiated for the contract were far higher than the prevailing rates, because the market prices for steel had in the interim period collapsed to a level one seventh of that prevailing when the contract was signed.

The carrier argued that even if the dam burst had not occurred, the iron ore production would have stopped, and in such circumstances the force majeure clause did not apply.

The argument ended up in the Court of Appeal, which stressed the need to look at the meaning of the language used in the force majeure clause. As written, it applied only if the contract would have been performed had the event not occurred. The Court being persuaded that it would not, damages were awarded to the carrier.

For help and advice on matters such as this please contact Julian Milan on 0808 166 8827 or email

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