Force majeure clauses in comparative perspective: the Canadian common law approach in light of recent developments in the courts of Singapore and the United Kingdom.

AuthorNeudorf, Lorne
PositionThe Impact of International Law on Canadian Law
  1. INTRODUCTION

    Modern commercial agreements typically include a provision for events of force majeure, which operate to fully or partly excuse or delay the contractual obligations of a party in defined circumstances. In terms of defining the events of force majeure, contracts often require a disruptive event to have occurred beyond the control of the contracting parties. In terms of the effects of force majeure, contracts generally require the event to have significantly interfered with the performance of the contract in order to relieve a party of its obligations, though the precise language varies from contract to contract. While force majeure provisions are similar to the contract law doctrine of frustration in that they both deal with the implications of an event that interferes with contractual performance, force majeure clauses are distinct in that the parties themselves define the terms of force majeure including the events that constitute force majeure and the contractual implications that flow from the occurrence of such an event. Furthermore, contracts dealing with events of force majeure can displace the ordinary doctrine of frustration in circumstances where the two overlap. According to a leading text on contract law, "[i]f the contract is worded in such a way as to make an interpretation of the contract to allow frustration contradictory of what the parties have expressed in the contract, or nonsensical having regard to their language, it is not open to the court to give the contract such a construction and apply the doctrine of frustration." (1)

    In its interpretation of a force majeure provision, the court will look to the precise language adopted by the parties. Although this focus on the contractual wording suggests the predominance of an individualized assessment in each case, courts have adopted certain approaches to the interpretation of ambiguous force majeure clauses that can be seen in their judgments. In Canada, the judicial approach to force majeure clauses is reflected in the 1975 Supreme Court of Canada case of Atlantic Paper Stock Ltd. v St. Anne-Nackawic Pulp and Paper Company Limited, (2) which remains the leading authority on force majeure clauses in the common law of Canada. Part II examines this significant Supreme Court of Canada case and the subsequent judgments of lower courts that have further elaborated the approach of Canadian courts to force majeure clauses. These subsequent cases reveal that lower courts have generally followed the Supreme Court of Canada's 1975 approach with limited exceptions. Despite this apparent certainty in the law, the lack of a case dealing with a force majeure clause at the Supreme Court of Canada in nearly 40 years presents the opportunity to consider more recent illustrations of the judicial interpretation and application of force majeure clauses elsewhere in the Commonwealth, and compare these developments with the Canadian common law approach. Part III looks to a 2011 case from Singapore's highest appellate court that considers whether the Indonesian government's ban on the export of sand constituted an event of force majeure under a contract for the supply of concrete by a Singaporean concrete manufacturing company. Part IV examines two 2013 cases decided by appellate courts in the United Kingdom: (i) whether a crane falling from a building during a severe cyclone in Mauritius and causing damage to an adjacent building constituted force majeure under that country's civil law; and (ii) whether a delay in the departure of a vessel loaded with crude oil, which was caused by a failure to follow the relevant Nigerian export and loading regulations, constituted force majeure under a charter-party and sales and purchase contracts. While each case dealt with a specific force majeure provision in relation to a particular disruptive event or a series of disruptive events, Part V offers a comparative analysis of these cases that provides insight into recent judicial trends in the interpretation and application of force majeure clauses. The insight gained from the comparative study suggests an opportunity for the further refinement of the common law in this area by Canadian courts.

  2. FORCE MAJEURE CLAUSES IN CANADIAN COMMON LAW

    (A) Introduction

    In Canada, as with other common law jurisdictions, force majeure arises from the terms of a particular contract as opposed to operating as an independent legal doctrine that is applied to all contracts. Given the ubiquitous nature of the term in Canadian commercial contracts, it is surprising that there have been relatively few judgments of Canadian courts interpreting force majeure clauses. This is particularly the case at the Supreme Court of Canada where, as described below, the Court has not interpreted a force majeure clause in nearly 40 years. Two things become clear from the Canadian common law jurisprudence in respect of force majeure clauses: (i) the alleged force majeure event must not be an event, or related to an event, of a party's own making; and (ii) the event generally must render performance of contractual obligations impossible. Mere inconvenience or commercial hardship will not suffice. A number of notable Canadian judgments involving the interpretation of force majeure clauses are canvassed below.

    (B) Non-availability of Markets

    The seminal authority on the interpretation of force majeure clauses in Canada is the 1975 Supreme Court of Canada decision in Atlantic Paper. The plaintiffs in that case, Atlantic Paper Stock Ltd. ("Atlantic") and Elliot Krever & Associates (Maritimes) Ltd. ("Elliot Krever"), and the defendant, St. Anne-Nackawic Pulp and Paper Company Limited ("St. Anne"), entered into an agreement for the supply of "waste paper" by Atlantic and Elliot Krever to St. Anne. St. Anne intended to use the waste paper at its mill in the manufacture of a corrugating medium. The supply agreement between the parties contained a minimum purchase obligation of 10,000 tons of waste paper per year for 10 years. (3)

    St. Anne was beset by difficulties in marketing its product from the beginning, including problems in the West German market and various other competitive and technological factors. (4) After only 14 months, St. Anne advised the plaintiffs that it would no longer accept any product under the agreement and approximately one year later, Atlantic and Elliot Krever commenced an action for damages before the New Brunswick Supreme Court, Queen's Bench Division. (5) St. Anne denied that it was liable to Atlantic as a result of non-availability of markets under the force majeure clause, which read:

    St. Anne warrants and represents that its requirements under this contract shall be approximately 15,000 tons a year, and further warrants that in any one year its requirements for Secondary Fibre shall not be less than 10,000 tons, unless as a result of an act of God, the Queen's or public enemies, war, the authority of the law, labour unrest or strikes, the destruction of or damage to production facilities, or the nonavailability of markets for pulp or corrugating medium. (6) It is interesting to note that while the above clause was interpreted by the Court as a force majeure clause, it did not expressly include the words "force majeure".

    Counsel for St. Anne argued that availability of markets should be interpreted to mean the availability of markets that were economically profitable. However, at trial, Justice Barry of the New Brunswick Court found that St. Anne could not avoid liability under the force majeure provision because there were in fact markets available to St. Anne. (7) Justice Barry refused to read into the clause that the available markets needed to be profitable markets, and found that "there is a market for corrugated medium, albeit a declining one, and very competitive market, and certainly, not an economic market at the defendant's cost per ton." (8)

    St. Anne appealed the decision of the trial court, and the Appeal Division of the New Brunswick Supreme Court granted the appeal. The Appeal Division held that "[t]he use of the words 'nonavailability of markets' discloses a different intent than if the force majeure clause had contained the words 'if there is no market for corrugating medium.' The phrase 'available market' necessarily connotes an advantageous or profitable market." (9)

    Atlantic and Elliot Krever in turn appealed the decision of the Appeal Division to the Supreme Court of Canada, which granted the appeal. The Supreme Court of Canada characterized the trial court's analysis of market availability as an objective test, and the appeal court's analysis of market availability as a subjective one. (10) Importantly for the force majeure analysis, Dickson J., for a unanimous five-judge panel of the Court, stated:

    The effect of the Appeal Division opinion would be to relieve St. Anne of contractual obligation if St. Anne could not operate at a profit. 1 doubt that reasonable men would have made such a bargain. It would in my opinion be doing violence to the plain words "non-availability of markets for pulp or corrugating medium" in the context of the entire clause within which the words are found, to permit St. Anne to rely upon its soaring production costs to absolve it of contractual liability. (11) The Supreme Court of Canada went on to refuse St. Anne's defence on the grounds that St. Anne had brought any condition of nonavailability of markets upon itself, (12) an interesting result given that the clause did not expressly limit it in that way; nothing in the language of the contract expressly stated that St. Anne would not be able to avoid liability if the nonavailability of markets was a situation of its own making.

    To arrive at that determination, the Court reviewed the list of force majeure events enumerated in the force majeure clause in the agreement and applied ejusdem generis to interpret the nonavailability of markets provision. (13) The Court...

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