How earthquakes, tornadoes, terrorist attacks and other extreme events affect your contracts

Acts of war, extreme weather conditions or a terrorist attack might seem like good enough reasons not to be held to deadlines or the precise terms of a contract. But this is not always so.

Volcanic ash clouds, prolonged severe winter weather and flooding, the terrible impact of the earthquake, resulting tsunami and nuclear problems in Japan, tornadoes in the USA and uprisings in various North African and Middle Eastern states, have peppered news reports for the last 12 months. But it may surprise you to know that if your business is affected by an extreme event such as these you are not automatically excused from contracts which you have entered into.

That could mean for example that in spite of your inability to have components made and flown in from Japan you may still have to honour the contract to supply finished goods to a major customer, quite probably at a much higher cost than you had budgeted for. If your staff cannot get to work due to severe weather conditions you could face financial penalties for failure to meet contractual service standards.

Unless, that is, your contract has a provision which covers the type of event causing the problem. You might be lucky and have an understanding customer, who can afford to wait, or is willing to release you from your obligations on reasonable terms. It’s more likely however that you’ll end up with a court having to decide, which can obviously be a lengthy and costly process or having to settle on terms which are less satisfactory for your business.

Consider the what if’s
The best way to deal with this issue is to consider at the outset what should happen in such circumstances and to include a suitable provision in your contract. This might include such options as suspending your obligations during the event, requiring information to be provided or for the effects of the event to be mitigated so far as possible and only allowing one or both parties a right to end the contract if the event continues beyond a specified period of time. The consequences of invoking the provision can then also be specified. You would have to define what is covered by the provision because there is no definition in English law and you would have to make sure that it satisfies any other relevant regulations.

Act before it’s too late
There’s no point waiting for the next natural disaster or political uprising to occur. You should consider incorporating a suitable provision into contracts now. Otherwise next time an extreme event - be it flood, fire or the flu pandemic which we have been long told to expect - actually hits, you may be left with uncertainty at the very time you need to be able to act quickly and decisively.

For further information on what to include in your contracts contact Sue Mann on 0845 003 5639 or by email.

For free advice on this topic please call us on 0845 003 5639.