Businesses should review force majeure provisions following High Court decision

Richard Dickman and James McBurney, commercial disputes experts at Pinsent Masons, were commenting on the decision in ADM Industries Centers Ltd (t/a ADM Israel) v Inerco Trade SA. In the case, the court considered the operation of a force majeure clause contained in a Grain and Feed Trade Association (GAFTA) commodities contract following disruption to grain shipments from Ukraine during the Black Sea Grain Initiative.

The dispute arose from a contract for the sale of Ukrainian corn. Inerco sought to invoke a force majeure provision after Russian inspectors stopped conducting inbound vessel inspections under the Black Sea Grain Initiative, preventing a nominated vessel from loading cargo. A GAFTA Board of Appeal ruled in the seller's favour, but the High Court subsequently considered several legal questions concerning the interpretation and operation of the contractual provisions.

Among the issues was the meaning of the term "unforeseeable" within the force majeure clause. The court held that, in the context of the relevant GAFTA provision, an event would be considered unforeseeable where its probability was so remote as to be regarded as negligible, providing important guidance on the threshold required for parties seeking to rely on force majeure events.

The judgment is likely to be of interest well beyond the commodities sector given the widespread use of force majeure provisions in business-to-business contracts. Force majeure clauses have come under increasing scrutiny in recent years as companies have sought to manage risks arising from major global disruption including the Covid-19 pandemic, the war in Ukraine and wider geopolitical instability.

Dickman said: "Force majeure clauses were often seen as 'boilerplate' clauses that were included in contracts as standard clauses without much consideration or negotiation. Following the Covid-19 pandemic, and other global events such as the war in Ukraine and the closing of the Strait of Hormuz, force majeure clauses have come under much greater scrutiny and should be negotiated much more carefully."

The decision is also significant for its treatment of contractual notice requirements. The court considered whether providing notice within the timeframe specified by the contract was a condition precedent to relying on the force majeure provision and concluded that compliance with the notice requirements was mandatory. Failure to provide timely notice could therefore prevent a party from relying on the clause, regardless of whether a qualifying force majeure event had occurred.

McBurney said this aspect of the judgment offers an important lesson for businesses and their advisers.

He said: "An additional point considered by the court was that giving proper notice of the activation of the force majeure clause was a condition precedent to being able to rely on the clause. With this in mind, companies and their advisers should ensure that they strictly adhere to the terms of notice provisions."

The ruling highlights that successfully invoking force majeure depends on more than demonstrating the existence of a disruptive event. Parties must also satisfy any procedural requirements in their contracts, including notice obligations, which courts may treat as a prerequisite to obtaining relief, he said.