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Force Majeure Clause in the Context of Pandemics, Wars and Sanctions

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The force majeure clause generally addresses circumstances beyond the control of the contracting party that affect its ability to perform and leads to the suspension of the relevant obligations or the cancellation of the contract. Therefore, force majeure can be defined as an individual concept that can partially or completely terminate the contract. Force majeure may arise from a natural event as well as legal action or decision such as export or import ban or sanctions.

Natural disasters such as earthquakes, floods, fires, epidemics are considered as force majeure. The general idea in the doctrine today is that force majeure breaks the causal link between tort and harm. Therefore, if force majeure arises and it is proved that the debt cannot be performed due to force majeure, the debtor will be exempt from the performance of the debt and the indemnification obligation and may terminate the contract partially or completely.

Especially during the Covid 19 Pandemic, force majeure clause was frequently used. Recent political and military crises, the Russian-Ukrainian War and tensions between countries have positioned the force majeure clause in an even more important place and made it a valuable component of the conventions. Because it is accepted that in cases of political instability, internal conflicts, rebellion and war, the force majeure clause can be relied upon. In most of the commonly used standard terms, it is stated that political instability and events of the nature of civil conflict or unrest will be considered force majeure.

In particular, even if these are not listed in detail in the force majeure clause, if the language of the contract is appropriate, a party may rely on the force majeure clause in this and similar events by way of interpretation. There is no consensus in the doctrine and court decisions on whether the Covid 19 pandemic alone is a valid and sufficient trigger for force majeure. To be able to rely on the force majeure clause depends on determining as much as possible the events to which the provision will be applied and clearly stating what will happen if the force majeure clause comes into play.

There is no generally accepted definition of force majeure or a framework whose content is clearly determined by the law in English Law. So, the content of the clause and the circumstances of the concrete case will always determine whether a party can rely on force majeure clause. In this context, some statements in the content of the contract are important. For example, words such as "Prevented" in the contract clause do not cover a change in conditions that affect the profitability of a contract or how easily the contract can be performed. What is required is that performance be physically or legally prevented or preventable. Words like "Hindrance" mean that performance becomes more difficult, but not impossible. Here, too, it is accepted that a change in the profitability of a contract is not sufficient to withstand force majeure by itself. For example, in Tennants v Wilson, the court ruled that the increase in the price of goods resulting from the war did not preclude delivery.

If one of the means of performance is prevented or hindered, the party that wishing to rely on the force majeure clause is obliged to prove that there is no other means of performance or at least that there is no reasonable solution acceptable for other performance. Availability of alternative sources of supply and delivery methods is particularly important in situations when goods are sold. The existence of a causal link between the triggering event and the failure to performing of the the obligation is necessary in order to be able to rely on the force majeure clause. Therefore, the triggering event must have the effect of preventing, inhibiting or delaying the performance. In the case of Triple Point Technology v PTT, the court ruled that the plaintiff could not rely on the force majeure clause. Because the plaintiff failed to meet the obligation to prove how civil operation in Thailand had disrupted business and made performance impossible.

Burden of Proof(Onus Probandi)
As stated in the court decisions, if the party relying on the force majeure clause cannot prove that it has performed its obligations, the claim of the related party to rely on the force majeure clause will not be legally protected.Therefore, it will be crucial to gather the available evidence. Because the party wishing to rely on force majeure must prove (1) the triggering event and its effect on non-fulfillment, and (2) the absence of other performance modes available. For example, a seller who has an obligation to deliver at a port in an area of civil unrest must submit to court evidence that it is not physically possible to unload at the port due to the fact that the terminal has suspended its activities, and also that delivery is not physically possible in any other way.In this example, the party relying on the force majeure clause is obliged to prove that any other method of delivery is not reasonable and acceptable, for example, contractually procuring the goods from a different source and transporting them by road.

Force majeure provisions often have prescriptive requirements for notifications that must be submitted by the party relying on the clause. These must be followed. Failure to do so may deprive the party of the protection of the substance.

BIMCO Model Force Majeure Clause
Especially after the Covid 19 Pandemic, various models have been created for the maritime industry to create the force majeure clause correctly. One of them is the BIMCO model force majeure clause. There is a high threshold that must be met before a BIMCO substance can be trusted. The party wishing to rely on force majeure must be prevented from fulfilling its obligation to perform, and the following points also must proven:

• A triggering event related to force majeure defined in the contract has occurred;

• The event occurred beyond the reasonable control of the party;

• The event that triggered the force majeure was not reasonably foreseen by the parties during the preparation of the contract;

• The effects of the event that were not foreseen by the parties were also not reasonably prevented or the occurrence of this event could not be prevented.

The clause also lays out a detailed list of what is considered a force majeure event. It includes natural events such as earthquakes, floods, landslides and other natural disasters and political events such as war, piracy and strike, as well as pandemics, fire and blockage of waterways.

Effect of Covid 19 Pandemic on Force Majeure Clause
COVID-19, which emerged in many countries in 2019 and has not lost its effect today, is considered as a force majeure. However, the existence of this pandemic alone will not justify the force majeure claim. Because the existence of a causal link that prevents and makes impossible the performance of the commitment subject to the contract for the contracting party is a very important factor for force majeure. Therefore, it should be examined in every concrete case whether the force majeure events are counted in a limited number before the contract, whether the coronavirus measures taken in terms of the performance of the contract can affect the performance of the contract, and whether the existence of force majeure and the impossibility of performance are reported in accordance with the performance of the contract.

Covid 19 was declared as an epidemic by the World Health Organization (WHO) on March 2020. Therefore, after this date, it has become trigger event that can only be considered a force majeure event, and in the presence of the above-mentioned current circumstances and conditions, it has become a force majeure clause that can be endured if the contract is not performed.

The impact of the Coronavirus Pandemic on the force majeure clause was evaluated in the European Professional Club Rugby v RDA Television LLP case. In this case, the court reconsidered the contractual situation in which the organizers of the sporting event were unable to hold live events due to the COVID-19 pandemic and therefore were unable to provide the contractually agreed media rights to the broadcast partners.

In this case, European Professional Club Rugby claimed that the media rights agreement between them was unfairly terminated by RDA Television LLP and demanded compensation. RDA denied this claim and claimed that it had the right to terminate the contract based on a force majeure clause in the contract. He has filed a counterclaim for the wage adjustment of the prepayments made for the period after the date he claimed to have terminated the contract and the amount paid for the seasons for which he declared the termination.

The court ruled that the broadcaster had the right to terminate the agreement based on the force majeure clause, as the rugby organization suspended quarter-finals, semi-finals and finals at the point where COVID-19 was declared a global pandemic1. The Court ruled that the fact that the other party was affected by the same force majeure event would not prevent the RTA from relying on the force majeure clause. Therefore, EPCR's request was left unanswered, except for the minimum guarantee payment under the contract.

In this case, the judge grouped the points that the court would consider when undertaking the contractual construction practice under 8 different headings:

1. The Court interprets the relevant words of a contract in its documentary, factual and commercial context.

2. The court may consider only facts or circumstances that were available at the time the contract or order was given and which were known or reasonably present to both parties.

3. In arriving at the true meaning and impact of a contract, in most cases the starting point will be the language used by the parties (since they had control over the contract and should have been focused on the issue at the exposure draft).

4. Where the parties use clear language, the Court must apply it.

5. Where the language used by the parties is unclear, where the context implies that the parties mean something else, the Court may deviate from its natural meaning as necessary.

6. If there are two possible constructions, the Court has the right to choose whichever is in accordance with commercial common sense (as at the time of the contract).

7. In striking a balance between the indications given by language and those arising contextually, the Court must take into account the quality of the draft of the paragraph and the agreement in its content.

8. The Court should not reject the inherent meaning of a provision as false because it seems imprudent, since it is not the Court's function when interpreting an agreement to save a party from a bad bargain.

Therefore, the court's decision actually states the following: Since the COVID-19 pandemic is an "epidemic" as defined in the force majeure clause and the article is written in a non-comprehensive way, the parties can rely on the force majeure mechanism in the contract.

However, it should be noted that the decision rendered in this case contradicts the previous Premier League case. The most important reason for this conflict is related to the preparation of the contracts and how the force majeure clause is written in the contract. This case and context provide an important reminder of the importance of drafting your contracts to provide the protection sought and appropriate allocation of risk to allocate risk between parties.

Effect of Sanctions on Force Majeure Clause
In particular, the US sanctions against Iran and Russia since 2018, as well as the sanctions imposed on Russia after the Russia-Ukraine War; It has revealed the issue of whether companies included in the sanctions list can rely on the force majeure clause. Here, the decision rendered by the British Court of Appeal in the case of MUR Shipping BV v RTI LTD in March 2022 is particularly important2.  In this case, the Commercial Court ruled that a shipowner has the right to rely on a force majeure clause in a shipping contract where the Russian parent company of the Charterers was subject to sanctions imposed by the US in 2018.

MUR Shipping BV ("Owners") entered into a Freight Agreement ("COA") in June 2016 with RTI Ltd ("Charterer") to transport 280,000 mt of Bauxite per month. The COA contained a force majeure clause stipulating that neither the Owners nor the Charterers are not liable to each other for loss, damage, delay or failure in performance caused by a force majeure.

In the COA, a "force majeure" was defined as an event or situation that met each of the following criteria: 1) that occurred outside the direct control of the party making the force majeure statement; 2) Preventing or delaying the loading of the cargo at the port of loading and / or the unloading of the cargo at the port of discharge; One or more natural events, extreme weather conditions ... any rule or regulation of governments, or any interference, action or instruction of governments, restraint of princes, resulting from restrictions on monetary transfers and barter; 3) which cannot be overcome by the reasonable efforts of the Affected Party.

On the other hand, the Charterers have stated that the force majeure clause cannot be relied upon by putting forward the following three arguments: 1) sanctions will not have an impact on the cargo operation. 2) Payment can be made in Euro. 3) The Owners of the Ship is a Dutch company and accordingly not a "US Person" under sanctions.

The Commercial Court concluded that the Owners' obligation to make "reasonable efforts" to deal with the incident did not require them to accept the Charterers' offer to pay in Euro. Furthermore, the judge dismissed the argument advanced by the lessor that one party's contractual obligations were one of several factors to be weighed in the balance of deciding the general question of reasonableness in a force majeure context.

Also looking at the event in the context of causation, the court found that it was highly likely that an intermediary bank in the USA would initially stop a sanctioned party's transaction in order to conduct investigations. The Court considered it an extremely narrow interpretation of the Charterers to read the force majeure provision only in relation to events that physically prevent or delay loading or unloading, and did not accept this argument. The force majeure  was not "self-induced" either. The restriction imposed by United States sanctions had caused an obstruction or delay in cargo handling or discharging.

While the case relates to the US sanctions imposed on Russian companies in 2018, it can provide useful guidance to parties considering invoking force majeure provisions in response to the recent sanctions against Russia and Belarus following the invasion of Ukraine. The case makes clear that a party's right to assert force majeure is not restricted by its obligations to accept non-contractual performance. In this context, although the right to rely on any force majeure provision is dependent on the specific wording of the force majeure clause in any case, the case may provide some assurance to the parties in contracts concluded with the sanctioned party.

Conclusion
The precise effect of a force majeure clause depends on its preparation and, like any other contract clause, will be interpreted by the Courts subject to the usual principles of legal construction. These clauses usually specify a process by which one party must notify the other that the specified event has occurred.

The force majeure clause should be clearly written and the consequences of a force majeure event should be stated in detail in the contract. Thus, the parties will be able to rely on the force majeure clause based on delays or impossibility of performance due to issues such as Covid 19 or the Russia-Ukraine War.

Footnotes:
1-Abu Helw, A., & Ezeldin, A. S. (2022). Framework for Enhanced Applicability of the Public Procurement Law to International Administrative Construction Contracts. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 14(2), 04522004.

2-MUR Shipping BV v. RTI LTD [2022] EWHC 467 (Comm)

Resources:
•    Abu Helw, A., & Ezeldin, A. S. (2022). Framework for Enhanced Applicability of the Public Procurement Law to International Administrative Construction Contracts. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 14(2), 04522004.
•    Charlson, J. (2022). Interpreting Contractual Rights to COVID-19 Remedies: An Analysis of Cases. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 14(4), 06522002.
•    Abbas, M., Morland, T. B., Hall, E. S., & El-Manzalawy, Y. (2021). Associations between google search trends for symptoms and covid-19 confirmed and death cases in the United States. International journal of environmental research and public health, 18(9), 4560.
•    Douglas, M., & Eldridge, J. (2020, January). Coronavirus and the Law of Obligations. In University of New South Wales Law Journal Forum (No. 2020, pp. 1-11).
•    Stiegler, S., & Bailey, Y. (2021). Termination before works are finished: application of liquidated damages? Triple Point Technology v PTT Public. CONSTRUCTION LAW INTERNATIONAL, 16(4), 13.
•    https://www.hausfeld.com/en-de/what-we-think/perspectives-blogs/no-quick-way-out-high-court-rules-against-force-majeure-justification/ (D.A. 2022.08.11)

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