1. May force majeure be relied on by a party to a contract, even if the parties have not included a force majeure clause?
No. Common law does not automatically apply the principles of Force Majeure to contracts. In order for Force Majeure to be invoked it needs to be covered in a clause of the contract. Many commercial contracts include "Force Majeure clauses" either as a separate clause itself or equal wording is included within other clauses (i.e. termination clause).
2. If so, please explain in which circumstances force majeure may be relied on.
Although Force Majeure has not been defined in law, some guidance as to its definition can be found in the case law of the Courts of Cyprus which follow common law principles on the issue of Force Majeure. Force Majeure comes into play when an unforeseeable event, outside the control of parties to a contract, prevents one or both parties from fulfilling their contractual obligations. Force Majeure operates either through the doctrine of Frustration or by specific provisions within the contract of the parties themselves, the Force Majeure Clauses.
A party to a contract will be allowed to suspend his obligations depending on the wording of the Force Majeure clause. Most often, Force Majeure clauses specify whether contractual obligations are to be suspended and if so for how long. Usually, it will be for as long as Force Majeure lasts and hinders the parties' ability to perform their contractual obligations.
In practice, most Force Majeure clauses are of a suspensory nature and the contract is taken to resume once the Force Majeure, incident comes to an end, unless the parties agree otherwise. On the other hand, if the event causing the inability to perform amounts to frustration of the contract (another legal concept) then the contract is automatically discharged and both parties excused from performing their obligation.
3. Is the concept of force majeure enshrined in legislation?
No. There is no statutory definition of "Force Majeure" in Cyprus. Cyprus is a common law jurisdiction and the term has not been universally recognised or defined in common law jurisdictions.
Force Majeure clauses allocate risk between parties to a contract when performance of contractual obligations becomes impossible due to the occurrence of such an event. In practice, it excuses one or both parties from non-performance of contractual obligations, but it does not necessarily imply the immediate termination of the contract. Due to the fact that Force Majeure may only be invoked if explicitly covered in the contract, the consequences of such event occurring will be set out in the contract itself. Hence, the Courts are tasked with examining the wording of the agreement to ensure that facts of a specific case fall within the ambit of a Force Majeure clause and to assess the intentions of the parties when contracting. A Force Majeure clause commonly provides for the obligations of one, or both parties, to be suspended and/or for the time within which they should be performed extended and/or delayed and/or even be altogether excused.
In the first instance case of Demetris Gerolemou a.o v. Giovani Developers Limited a.o. Action No. 801/2012, 08/01/2018, the Court defined "Force Majeure" by relying on the English case Greenock Corp. v Caledonian Ry (1917) A.C.556, as a "random and unpredictable event that falls outside the human factor and could not be reasonably predicted".
If an appropriate force majeure clause has not been inserted in a contract, a party would be unable to rely on an event of Force majeure, save where such an event leads to a frustration of the contract. The doctrine of frustration is a common law principle which has been transplanted and codified into Cyprus Law under section 56 of the Cyprus Contract Law (Cap. 149) and states that a contract will be deemed automatically discharged where it becomes illegal or otherwise impossible to perform (by an event unforeseeable at the time of contract). However, if performing the contract would be merely financially undesirable, a party will not be able to argue that the contract is frustrated and therefore terminated immediately.
4. If so, may the parties agree to derogate from the provisions of this legislation?
As mentioned above, liability of a party to a contract will depend on the content of the Force Majeure clause and what is provided under the clause and the contract between the parties in general. In most instances, it is common that such Force Majeure clauses are specifically inserted in a contract with the intention of avoiding liability for such pre-defined Force Majeure events that may occur and will allow the party relying on them to either suspend performance or be excused all together.
5. What is the approach taken to drafting force majeure clauses in your jurisdiction?
Force Majeure clauses need to be as specific and detailed as possible to ensure proper allocation of risk in the event that such a Force Majeure event occurs but also to ensure that both parties agree to the events that would qualify as Force Majeure if they occur. Most such defined events are generally unforeseeable and the interpretation of such events, as discussed above, is generally narrow.
6. Is it common practice to include force majeure clauses in commercial contracts?
Yes, in general such clauses are used in most commercial contracts, ranging from commerce to construction, as well as most commercial lease agreements.
7. Would the courts be willing to imply force majeure terms into contracts?
The approach taken by Cyprus courts, which follows the English Court approach, is to apply a narrow scope for the interpretation of Force Majeure clauses. A party which relies on Force Majeure clause to avoid the performance of contractual obligations due to an increase in costs or difficulty tends to be discouraged by the Courts. This is also due to the fact that Force Majeure belongs in the category of exclusion or limitation clauses; hence it should be narrowly construed, as per relevant caselaw (National Bank of Kazakhstan and another v The Bank of New York Mellon SA/NV, London Branch [2018] EWCA Civ 1390).
Guided by Cypriot caselaw, in Cyprus Cinema & Theatre Co. Ltd v. Christodoulos Karmiotis (1967) 1 CLR 42 the Court refused to interpret facts as falling within the term of "Force Majeure" because the relevant clause of the contract did not refer to such circumstances.
In order to avoid liability and ensure that risk is properly allocated during the occurrence of such events, it is advisable to include precise and specific Force Majeure clauses.
8. How do courts approach the exercise of interpretation in relation to force majeure clauses?
Most Force Majeure clauses will specifically describe what shall constitute a Force Majeure event in the context of the specific contract and what it shall cover. Often, an exhaustive list of specific events amounting to Force Majeure is included to ensure that the clause is descriptive enough to reveal the intentions of the parties. It is not uncommon however to have a Force Majeure clause that is broader and/or non-exhaustive. Nonetheless, it is not clear whether or not the Courts will be willing to apply interpretation principles in trying to assess whether or not an incident amounts to Force Majeure under a contract.
9. Are there any legislative or statutory controls on the use of force majeure clauses?
Not as such. There is no provision in Contracts Law, Cap.149 referring to the principle of Force Majeure. It is worth mentioning that other principles similar to force majeure have been codified into Cypriot legislation (i.e. the doctrine of frustration).
10. Must an event have been unforeseeable at the time of the contract to permit a party to rely on it as force majeure?
Most Force Majeure clauses included in commercial contracts include a list of specific events that would qualify as Force Majeure under the specific contract. Such events include but are not limited to wars, earthquakes, hurricanes, floods, typhoons, riots, governmental prohibitions, epidemics or the more general reference to "acts of God" but can also include strikes or shortage of labour and materials, especially in construction contracts.
It is useful to highlight the English case of Lebeaupin v Richard Crispin and Company [1920] 2 KB 714, which is often relied upon by Cyprus Courts, where the High Court undertook a useful review of previous authorities and, by way of example, contrasted war, strikes, actions of a state such as embargoes and licence refusal, all of which may amount to Force Majeure, with bad weather, funerals and the rising cost of fulfilling a contract, which will not constitute Force Majeure.
Originally Published by The Legal 500
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.
