Commercial litigation brought about by the COVID-19 pandemic has demonstrated some unintended consequences arising under boilerplate force majeure clauses, such as planes flying empty without passengers at a loss to the airline. As the recovery from the COVID-19 crisis may be soon followed by the onset of a climate change crisis, a question of how a typical force majeure provision will respond to the latter has never been more relevant.
A standard force majeure provision is designed to excuse a party's liability for failure to perform its contractual obligations due to an extraordinary event outside that party's reasonable control or foresight. Chronic, long-term and foreseeable incidents do not usually fall within the scope of force majeure triggering events.
Yet climate change-related events are exactly that – chronic, long-term and arguably foreseeable. Physical climate change risks – such as hurricanes, wildfires, floods and heatwaves - pose an immediate threat to contracting parties. The increasing frequency of their occurrence makes them gradually more and more foreseeable. Let’s take floods as an example – a Met Office study suggests that an extended period of extreme winter rainfall in the UK is now about seven times more likely to happen than in the second half of the 20th century. Reliance on a force majeure provision in relation to non-performance caused by floods which requires lack of foresight may prove impossible in the next decade.
Finally, most force majeure boilerplate clauses adopt an all-or-nothing approach to contractual non-performance, which is ill-suited to long-term risks that often require parties to work together to adapt their contractual performance over time rather than be relieved of liability for non-performance.
In light of this, contracting parties are unlikely to want to take on the risk of known and foreseeable climate change-related events. At Clyde & Co, we can assist our clients in adopting a fair Climate Contract Risk Sharing clause in their contracts to provide a tailor-made solution to the issue of climate change risk allocation.
This post is part of a series of short updates summarising the precedent clauses drafted in the course of collaborative hackathons organised by The Chancery Lane Project. Clyde & Co held its own hackathon in partnership with The Chancery Lane Project in July 2020, and has taken a leading role in the Big Hack, another hackathon organised centrally by The Chancery Lane Project throughout autumn 2020.