Force Majeure in Tumultuous Times: Impracticability as the New Impossibility It’s Not as Easy to Prove as You Might Believe This article first appeared inThe Journal of World Investment & Trade 13 (2012) by Mark Augenblick and Alison B. Rousseau Force majeure clauses excuse a party what constitutes a force majeure from performance if some unforeseen event. Impediments to contract event beyond its control prevents performance frequently occur. performance of its contractual obliga- Arbitration tribunals, however, tions. Although the prior standard rarely enforce force majeure clauses of “impossibility” to invoke force unless the specific impediment is majeure has effectively been replaced defined in the clause, even though by “impracticability,” arbitration the prior standard of “impossibility” Mark Augenblick tribunals rarely enforce force majeure to invoke force majeure has effec- Litigation clauses unless the specific impediment tively been replaced by “impractica- +1.202.663.8393 is defined in the clause. As a result, bility.” The current standard of [email protected] the standard of “impracticability” “impracticability” appears to be is not as easy to prove as it might relatively easy to prove, but it is not. appear to be. Foreseeability, failure International business people are to explore alternate performance, presumed to be aware of the risks and lack of timely notice are common they face. They are held accountable reasons that force majeure defenses if they fail to protect themselves fail. Due to tribunals’ typically nar- specifically in their contract. row and restricted application of There is no universally accepted force majeure clauses, they should be definition of the requirements to detailed, comprehensive, and focus on Alison B. Rousseau successfully invoke force majeure. the particular circumstances of the Litigation Different laws and jurisdictions take transaction at issue. +1.202.663.9218 different approaches.2 Moreover, the [email protected] Introduction focal point of analysis is on the wording of the specific clause at Mark Augenblick is a senior counsel in the Most international business agree- issue. A definitive summary of the Washington, DC office of Pillsbury Winthrop ments have force majeure clauses. law of force majeure is beyond the Shaw Pittman LLP. He has extensive Force majeure means “superior scope of this paper. Instead, we experience handling complex construction, force.”1 These clauses excuse a party focus on what we believe are the technology, telecommunications and real from performance if some unfore- legal and contract drafting points of estate disputes. seen event beyond its control greatest practical significance in prevents performance of its contrac- Alison Rousseau is a senior associate in light of the challenges faced when tual obligations. Their purpose is to Pillsbury’s Washington, DC office. She has relying on a force majeure clause. allocate risk and to provide notice of specialized experience in complex real events that may delay or excuse The law of force majeure has estate-related disputes, False Claims Act performance. evolved to reflect “…the needs and litigation and investigations, and zoning common practices of the interna- appeals. Parties to a contract expressly tional business community….”3 allocate their risk when they define Pillsbury Winthrop Shaw Pittman LLP www.pillsburylaw.com Litigation There is an emerging consensus Published arbitral awards suggest To rely on a force majeure clause in about force majeure legal require- that a large majority of all force most jurisdictions, a party must ments that your authors believe is majeure defenses are rejected. The establish that the event was not represented in the International difficulties are demonstrated in an foreseeable. This is likely to become Chamber of Commerce’s (“ICC”) ICC case7 where a dispute arose more and more difficult as the world Force Majeure Clause 2003 (“ICC when the seller did not deliver the sees the far-reaching effects of Clause”).4 The ICC Clause incorpo- goods promised in the contract, recent devastating events. Virtually rates an “impracticability” standard. arguing that non-delivery by a any type of “imaginable” event is It provides that an event must be (1) supplier excused liability under arguably foreseeable. beyond the party’s control, (2) not Article 79 of the United Nations Given the narrow and restricted foreseeable at the time the contract Convention on Contracts for the interpretation of force majeure, it is is signed, and (3) an event that could International Sale of Goods essential to draft a detailed and not reasonably have been avoided or (“CISG”)8 or the force majeure comprehensive force majeure clause overcome. These principles and clause in the contract. The tribunal, that addresses the particular their corollaries are discussed below. applying the CISG to the contract circumstances of the transaction at pursuant to applicable German law, Recent dramatic events have caused issue. Due consideration must be said that the risk of non-delivery by widespread commercial loss and given to the market, the relevant a supplier fell clearly on the seller. business interruption. These include jurisdiction, the location of the The tribunal noted that its decision the events of September 11, 2001; project or services, and all external was in line with the consistent Hurricane Katrina in 2005 in the events that may interfere with practice of ICC arbitrators who area of New Orleans, Louisiana; and performance of the contract. This is uphold the force majeure defense the 2010 volcano in Iceland that because unless the type of event is only in “extreme cases such as war, disrupted flights and impacted specifically listed in the force strikes, riots, embargoes or other businesses at airports and those majeure clause, virtually no external incidences listed” (emphasis added) reliant upon air freight. Most event will be deemed unforeseeable in the force majeure clause of the recently, the devastating earthquake and constitute force majeure contract. The tribunal further noted and tsunami in Japan destroyed excusing contract performance. that, in cases of impediments to factories and interrupted the supply performance related to typical We first address the “principles” of chain for Japanese and international commercial risks, arbitrators uphold force majeure; the ICC’s Force businesses. the principle of pacta sunt servanda Majeure Clause 2003, which your One author notes that, although past (preserve the sanctity of contract). authors believe best summarizes the man-made catastrophes (Bhopal, the emerging law of force majeure; and Similarly, under common law, the Exxon Valdez, and even Chernobyl) then challenges to successfully burden is upon the contractor to had devastating local consequences, invoking the doctrine. We next negotiate limitations on his strict their national and international review contemporary force majeure liability such as by inclusion of a impact was relatively limited.5 He events and how they may be inter- force majeure clause. Under U.S. law, goes on to point out, on the other preted in the context of a force for example, “[c]ontract liability is hand, that a global failure of the majeure defense. We conclude with strict liability. It is an accepted Internet from cyberterrorism or a specific drafting suggestions to deal maxim that pacta sunt servanda, prolonged power grid failure in the with these sorts of events. contracts are to be kept. The obligor U.S. would have national and is therefore liable in damages for international commerce ramifica- Principles of Force Majeure breach of contract even if he is tions.6 These extraordinary and Background without fault and even if circum- difficult-to-predict events bring The concept of force majeure stances have made the contract more home the need for an effective force originated in the Napoleonic Code.10 burdensome or less desirable than majeure clause. In common law, the concept has he anticipated.”9 Pillsbury Winthrop Shaw Pittman LLP Force Majeure in Tumultuous Times: Impracticability as the New Impossibility evolved from one of “physical basis for excusing a wrongful act other parties—a requirement wholly impossibility” to “frustration of only when (1) the act is the only missing from the inquiry under force purpose” (U.K.) to “commercial means for the state to safeguard an majeure. impracticability” (U.S.). Initially, the essential interest against a grave or It is now generally accepted in test for impossibility in common law imminent peril, and (2) the act does common and civil law systems that was objective: Was performance not seriously impair an essential contractual performance that rendered absolutely or physically interest of the state or states towards becomes “impossible” or “commer- impossible? which the obligation exists, or of the cially impracticable” under certain international community as a Today, most tribunals and courts circumstances may be excused. The whole.15 Argentina has widely utilize a standard of commercial issue we address is under what invoked the necessity defense in the impracticability.11 Performance is circumstances—recognizing that arbitrations it has faced and is facing excused when it is not practical and there is not unanimity of approach in the International Centre for the could be done only at excessive and in all legal systems. Settlement of Investment Disputes unreasonable cost.12 The U.S. (“ICSID”).16 As a result of a financial The ICC