In the following case the commercial court had to consider (amongst other things) whether a force majeure clause was triggered by a dramatic change in market conditions. Although the case concerned an aircraft sale agreement the court's comments concerning force majeure clauses apply generally to construction contracts governed by English law.
Tandrin Aviation Holdings Limited v Aero Toy Store Llc & Anor [2010] EWHC 40
The seller entered into an agreement for the sale of a jet aircraft to a purchaser (the Agreement) for US$31.75 million. Under the Agreement, the purchaser paid a deposit of US$3 million to an escrow agent; with the balance due upon delivery of the aircraft. When the purchaser failed to take delivery of the aircraft or pay the balance, the seller terminated the Agreement and sought recovery of the deposit.
The purchaser's main defence was that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial markets" triggered the force majeure clause in the Agreement.
This argument was rejected by the court which held that the purchaser could not rely upon the force majeure clause to excuse its non-performance.
The force majeure provision
Clause 7.17 provided:
"Force Majeure: Neither party shall be liable to the other as a result of any failure of, or delay in the performance of, its obligations ... for the period that such failure of delay is due to: Acts of God ... or any other cause beyond the Seller's reasonable control..."
The court noted that it was a well established principle of English law that a change in economic or market circumstances affecting the profitability of a contract or the ease with which the parties' obligations can be performed, was not regarded as a force majeure event. Further, there had been no reported case where change of economic or market circumstances has been held by any English court to amount to force majeure.
The court also noted that Chitty on Contract, 30 ed, para 14-148 in its list of matters as having been held not capable of constituting force majeure included:
"a failure of performance due to the provision of insufficient financial resources or to a miscalculation. A rise in cost or expense."
Whether a force majeure clause in a contract is triggered depends on the proper construction of the wording of the relevant clause. The force majeure clause in the Agreement did not refer to economic circumstances and the court could see no basis for construing the clause so as to include any funding difficulties encountered by the purchaser.
The court also noted that in cases concerning frustration that it was clear from previous authority such as the House of Lords decision in National Carriers v Panalpina (Northern) Ltd [1981] AC 675 that an increase in either the expense of a contract or the onerousness of performance of the obligations, could not constitute frustration. See also the case of Gold Group Properties Ltd v BDW Trading Ltd (formerly known as Barratt Homes Limited) [2010] EWHC 323 (TCC) reported in our May 2010 Construction Updater.
Editors' comments
This case is a reminder of the principles involved when considering force majeure clauses and the approach that the English courts take on such matters.
View: Tandrin Aviation Holdings Limited v Aero Toy Store Llc & Anor [2010] EWHC 40
This article was first published in the Norton Rose Construction and infrastructure updater July 2010
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
