Major Disruption: how will the courts apply Force Majeure clauses in the age of Covid-19?

With businesses suffering considerable disruption because of the pandemic, the scope and application of force majeure (“FM”) clauses has been a question of great legal and commercial interest. Fortunately, in the recent case of Fibula Air Travel srl v Just-Us Air srl [2020] EWHC 3048, the High Court provided an initial indication of the likely approach judges will take to the interpretation of FM clauses going forward.

Force Majeure

Force Majeure clauses release a party from liability when an extraordinary event outside of their control makes the fulfilment of a contractual obligation impossible. The exact scope and meaning of an FM clause will depend upon how the contract is drafted (although wars, strikes and natural disasters are examples of commonly stipulated FM events).

Background to the Case

By way of a wet lease dated 9 December 2019, Fibula Air Travel srl (“Fibula”) chartered an aircraft from Just-Us Air srl (“Just-Us”). Under the terms of the lease, Fibula was required to pay Just-Us the first installment on 18 March 2020.

On 17 March, Fibula purportedly terminated the lease. Fibula relied on a Force Majeure clause allowing either party to terminate the lease if a “force majeure situation” arose that continued “for a period of ten days or longer”. Fibula argued that the pandemic amounted to a “force majeure situation”.

Fibula also withheld payment of the first instalment, asserting that a further clause in the lease provided that neither party would be liable for a “failure or delay in the performance of any obligations under [the lease] due to force majeure”.

The High Court’s Analysis

Although the extent to which Fibula could rely on the Force Majeure clause to withhold payment of the first installment and terminate the lease was not the principle issue in dispute (see conclusion below), the High Court made several important observations on this issue.

• Purpose

In analysing whether a “force majeure situation” had occurred, the Court gave considerable attention to the purpose of lease. The lease was intended to provide Fibula with an aircraft that would fly between Romania and Turkey. Given that neither Romania nor Turkey had suspended flights between the respective countries before Fibula had (purportedly) terminated the lease on 17 March, a “force majeure situation” was unlikely to have arisen. Had flights between Romania and Turkey been suspended due to the pandemic at the time of termination, Fibula’s reliance on the Force Majeure clause would have been better grounded (pun intended).

• Causation

When relying on an Force Majeure clause, it is important to identify a link between the disruptive event and the specific contractual obligation one is unable to perform. Although Fibula were arguing that the pandemic was a “force majeure situation”, it was not clear why the pandemic actually prevented Fibula from paying the first installment on 18 March.

• Timing

Under the terms of the lease, Just-Us were not obligated to start flying until 1 April 2020 (ie. after the dated on which the lease was terminated). Fundamentally, it makes little sense to say that the pandemic constituted a “force majeure situation” when – even if the pandemic had caused flight disruptions – Just-Us had no obligation to fly prior to payment of the first instalment.

Another timing issue concerned the date on which the lease was terminated. According to the Force Majeure clause, Fibula was only entitled to terminate the lease for a “force majeure situation” that lasted “a period of ten days or longer”. On 28 March 2020, Turkey suspended flights to Romania. Assuming that 28 March was the earliest conceivable “force majeure situation”, Fibula would only have been entitled to terminate the lease on 7 April 2020. Consequently, as the High Court observed, a “force majeure situation” on 28 March would not have released Fibula from its obligation to pay the first installment or the second, which was due on 1 April.

Conclusion

Although the principal issue in this case concerned Fibula’s application for a freezing order against Just-Us in respect of a security deposit, the High Court’s analysis of Fibula’s reliance on the Force Majeure clause is likely to reflect the robust approach that judges will be taking to future disputes based on pandemic-related business disruption. In particular, judges will carefully consider the particular wording used in an Force Majeure clause and the factual background underlying the dispute – including the parties’ commercial understanding of the contract’s purpose.

Mere financial difficulties or operational complications are unlikely to be deemed sufficient grounds for triggering a party’s rights under an Force Majeure clause. In these circumstances, alternative contractual provisions – like “material adverse effect” clauses – and common law remedies – like restitution (and perhaps frustration) – may be more plausible avenues for relief. Of course, this will need to be assessed on a case-by-case basis.