Volcanic Eruption Disruption: Can the law offer any redress?

Other than the odd intermittent suspension, Europe's airways are now open, but repercussions of Iceland's volcanic eruption continue to be keenly felt. In addition to the airlines, many businesses have suffered from the effects of the closure of a vital transport system and, whilst the exact price of the disruption is not yet known, the global cost could amount to billions of pounds.  Inevitably, the legal implications for contracts, where performance has been affected by the fallout from the eruption, need to be explored. Can the law offer any redress?

Frustration

As a general rule, English law will not assist those who do not fulfill a contract due to  it becoming more difficult to perform. However, the doctrine of frustration is a limited exception to this rule.

The principle is that a contract is automatically discharged where an event occurs which fundamentally affects its performance. The event must have been beyond the contemplation of the parties when the contract was entered into, and no party must be at fault.

In such circumstances, the parties are excused from performing their future contractual obligations and no entitlement to compensation arises. For example, a contract may be frustrated where the subject matter has been destroyed or becomes unavailable, or where performance is impossible due to government interference or a change in the law.

The Courts interpret the criteria for frustration narrowly and the principle will not be invoked merely because the contract becomes more expensive to perform. Despite this, there may be an argument that the volcanic ash cloud, that caused all air traffic over the United Kingdom and significant parts of the European mainland to be halted, has frustrated some contractual arrangements.

Force Majeure

When a contract is being made, the parties may decide to try and bring some certainty to how the law on frustration of contracts will affect their relationship – their rights and obligations.  They may also make provision for other circumstances where a contract may be difficult, but perhaps not impossible to perform. This may take the form of a 'force majeure' clause in the agreement. Such clauses are based on the principle that a party should not be required to perform a contract that is affected by unexpected circumstances outside of their control. The benefit of clauses of this nature is that they allow parties to allocate risk and provide for certainty in such situations.

The clause may provide for the contract to be suspended or terminated on the occurrence of a specified event and will typically require a party to serve notice to invoke the clause.

The kinds of events such clauses will often aim to address are: war; terrorist attacks; pandemics; industrial action; and "acts of God", such as earthquakes and floods. "Adverse weather" does not usually fall within the scope of an "act of God" unless it is expressly included.  Some insurance companies are questioning whether the ash cloud should be classified as "adverse weather" rather than "an act of God".

The classification can therefore have significant implications for a party's rights and obligations. This highlights the importance of clear contractual drafting. 

Learning from recent events, businesses should review whether their existing contracts make provision for such circumstances and take legal advice on the implications of operating the force majeure clause. Given current concerns about global warming and the potential impact such natural disasters may have in coming years, it may also be worthwhile considering making provision for appropriate unexpected events by including a 'force majeure' clause in new contracts.

For more information and advice contact Danielle De Val on 01223 461155 or email her here.