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Was the recession a force majeure event?

27 January 2010

The UK has just this week reportedly emerged from recession but the pain is still being felt by suppliers and customers throughout the UK.

It has been the cause of many breached contracts, failed deliveries and missed payments over the last few months, a fact that’s unlikely to change as a result of the economic growth figures.

But what if you can no longer perform your part of a bargain because the funding you thought you had in place is no longer available? Should you be able to escape your obligations?

What about if you were aware of a clause in your contract allowing you to escape liability for “force majeure events”?

Sadly for the purchaser of an executive jet aircraft whose case was heard this month, such a clause, by itself, may not help.

It seems only right that force majeure should not include economic downturns, particularly where it is possible for the parties to deal with a lack of funding another way – by using a “hardship” clause or to make the deal dependent upon the purchaser first obtaining funding.

For those suppliers facing unwilling purchasers (or would-be purchasers waiting for deliveries) this case is likely to be welcomed. The recession (and its consequences) wasn’t a force majeure event, nor should it be treated as one, but rather a challenge that buyers and sellers must face together on their own terms.

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Richard Nicholas

Richard Nicholas

Partner and Responsible for In House Lawyers

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