Force Majeure: How a business can protect itself

The expected stabilisation at the beginning of the year has not materialised, in some part due to the geopolitical developments that have been delivered by the USA. Larger businesses generally have a greater capacity to cope with ongoing pressures but smaller companies are not always able to.

Businesses of any size must be sure that their contracts have clauses that protect them in the event of a challenge and force majeure clauses have become increasingly important and play a critical role when events occur that are beyond the control of the parties involved. Traditionally, these clauses covered natural disasters, wars, or other Acts of God. The European Union’s efforts to restrict dependence on existing supply agreements highlight the fact that force majeure clauses are not just a private contractual tool but is also a factor in regulatory changes.

EY Item Club, the only non-governmental economic forecasting group, said that in light of “…the spiralling energy costs and disruption to supply chains will push the UK to the brink of a technical recession in the middle of the year…” 

Companies that do business in countries across Europe will recognise that there is a divergence between the legal systems - civil law as opposed to common law. Including an express clause in the contract insures that a business that finds itself in the position of being unable to fulfil a contract due to events beyond its control is protected from liabilities in this risk-prone world. Such clauses provide a legal framework that ensures that a business is not penalised due to circumstances it cannot control and provides resilience, allowing the parties to rapidly adapt to unexpected changing conditions.

The key clauses to include are:

• Include a detailed list of potential events that could trigger the clause.
• To prevent disputes force majeure clauses may include notification requirements that oblige the impacted party to inform the opposing party within a timeframe which can allows each party to adjust their actions.
• Often the clauses require the impacted party to indicate the direct effect and allows reasonable steps to be taken to mitigate losses.
• Some clauses allow the temporary and sometimes permanent suspension of the contract.

Businesses operating across Europe and the UK are facing unprecedented levels of disruption. These events have highlighted the critical role that force majeure plays in safeguarding commercial relationships, ensuring contractual flexibility and allocating risk. However, the effectiveness depends entirely on their wording and the specific circumstances of the disruption. For instance, clauses that explicitly reference “war,” “embargo,” or “government action” are more likely to be successfully invoked than those relying on general language.

Disruptions such as airspace closures, sanctions, and interruptions to global shipping routes have had significant impacts on European supply chains.

In the current economic climate globalised supply chains the disruptions in one region cascades into multiple jurisdictions which further amplifies the importance of a clearly defined force majeure clauses that allocate the risk between parties and provides a way to manage unforeseen events. Force majeure clauses are no longer just legal formalities, they are essential and they’re a practical tool for survival in a volatile environment. They:

• Allocate risk more fairly 
• Prevent unfair liability 
• Provide a structured response when things go wrong 

Without them, parties are exposed to significant financial and legal risk in situations they cannot control.

Edward Norton, a partner with extensive experience spanning commercial litigation and complex insolvency matters. Edward gained invaluable cross-border experience during a significant period at a large offshore law firm. Here, he worked on several landmark international cases, including the largest recorded insolvency on record to date and a complex dispute exposing large-scale political corruption at government level in China, where he successfully acted as lead advocate in a pivotal and ultimately victorious hearing.

Edward's practice is underpinned by a profound sense of justice and a conviction that high-quality legal representation should be accessible to all. This purpose drives his commitment to securing the very best results for his clients. Edward advises expertly on matters of English law while particularly enjoying his work with both English and Italian clients, fostering strong international connections inherent to Giambrone's ethos. His personable approach and exceptional ability to distil complex legal concepts into clear, straightforward language enables his clients to have a full understanding of their case and situation. Edward believes that lawyers must not only possess deep legal acumen but also provide responsive, high-level service.