Force Majeure Clause May Be Unreliable If Circumstances Are Within Reasonable Control

Publication Date10 July 2020
SubjectCoronavirus (COVID-19), Litigation, Contracts and Force Majeure
Law FirmVeale Wasbrough Vizards
AuthorMr Paul Gershlick

Force majeure clauses have risen from ignored boilerplate clauses to top of the agenda due to coronavirus (COVID-19). The High Court has ruled against a party looking to rely on a force majeure clause...

... despite the express mentioning of the actual type of event (riot) within the clause.

The Contract

In the case of 2 Entertain Video Ltd v Sony DADC, the parties entered into a contract for Sony to provide warehousing and logistics services for 2EV's home entertainment business. Sony was storing a large amount of stock. During the 2011 London riots, rioters launched petrol bombs and the warehouse including all the contents burned down. Sony's insurers paid out '40m for the stock that was lost. 2EV also claimed for its loss of profits.

What Did the Contract Say?

There were two relevant provisions:

One was for force majeure, providing the following: "Neither party shall be liable for its failure or delay in performing any of its obligations hereunder if such failure or delay is caused by circumstances beyond the reasonable control of the party affected including but not limited to industrial action (at either party), fire, flood, wars, armed conflict, terrorist act, riot, civil commotion, malicious damage, explosion, unavailability of fuel, pandemic or governmental or other regulatory action."

There was also an exclusion of liability for loss of profits, as follows: "Neither party shall be liable under this Agreement in connection with the supply of or failure to supply the Logistics Services for any indirect or consequential loss or damage including (to the extent only that such are indirect or consequential loss or damage only) but not limited to loss of profits, loss of sales, loss of revenue, damage to reputation, loss or waste of management or staff time or interruption of business."

Why Did the High Court Rule Against Sony?

Firstly, the High Court ruled that Sony was not excused by the force majeure clause. The Court agreed that the riots were unforeseen and unprecedented. However, the risk of intruders was foreseeable - unauthorised entry had been attempted and/or achieved during incidents that had occurred prior to the riot. The risk of arson was, or should have been, foreseen. Sony had engaged a security consultant, but had...

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