Bristows’ SnippITs: The clock starts when? Force majeure and notice requirements examined

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

Providing the correct notice is a common pre-condition to exercising certain contractual rights, including rights which excuse a party’s non-performance. In the case of ADM Industries Centers v Inerco Trade, the court considered whether a notice requirement was a condition precedent to the non-performing party relying on force majeure. It also considered when the force majeure event began for the purpose of giving notice.

Key takeaways

1. Force majeure is worth considering: In technology contracts, force majeure is regularly one of only a handful of provisions that excuse late/defective supplier performance. It is often broadly defined e.g. by reference to a circumstance not within a party’s “reasonable control” or, in this case, any “unforeseeable and unavoidable impediments to transportation or navigation”. Force majeure may therefore be raised in a variety of contexts and a supplier should consider how and when it may be able to rely on this relief if some unexpected external factor impacts performance.
2. Check for conditions precedent: Clearly expressed condition precedents (e.g. “provide that”) will be strictly enforced. The arbitral tribunal in this case had been wrong to decide that some form of prejudice must be caused to the innocent party as a result of the non-compliance.
3. Understand when to give notice: Force majeure clauses often only grant relief if a notice has been served – here within 7 days of “the occurrence”. In this context, the court found that a force majeure “occurrence” might not start when the event in question first happens, but rather when the event meets the criteria of a force majeure. This will be particularly relevant to escalating or developing circumstances, which may not initially meet the force majeure threshold.
4. Avoid ambiguity, particularly in conditions precedent: Clearer drafting would have assisted the parties here regarding what was meant by “occurrence”.

Background

Inerco Trade sold Ukrainian corn to ADM, with shipment of the corn due on 15 May 2023. The parties’ contract included a force majeure clause dealing with “prevention of shipment” as a result of “unforeseeable and unavoidable impediments to transportation or navigation”. The clause provided that if a force majeure event prevented Inerco Trade’s performance, then performance should be suspended for the duration of the event, provided that Inerco Trade served notice of the force majeure event “within 7 consecutive days of the occurrence”.

When the contract was entered into, a regime called the Black Sea Grain Initiative was in effect as a result of Russia’s invasion of Ukraine. It required vessels entering the Black Sea to load grain to be inspected by the Joint Coordination Centre (JCC).

On 7 May 2023, while Inerco Trade’s nominated vessel was awaiting inspection, Russian JCC inspectors stopped inspecting inbound non-Russian vessels. The port agents informed Inerco Trade the next day, describing the actions as “sabotage”. By 11 May 2023 there were 60 inbound vessels awaiting inspection. The situation continued until 18 May 2023, when inspections resumed.

On 16 May 2023 Inerco Trade notified ADM that it was invoking the force majeure clause and on 19 May 2023, when inspections resumed, it confirmed that the force majeure had ceased and it would proceed to ship the corn. ADM did not accept that the force majeure clause applied and maintained that shipment remained due on 15 May 2023. Inerco Trade claimed that ADM was in renunciatory breach by declaring an intention not to accept and pay for the corn.

Findings of the Arbitral Tribunal/GAFTA Board of Appeal

The case was initially subject to arbitration and then appeal to the GAFTA Board of Appeal (as a consequence of the contract being on GAFTA 48 terms). The board held in favour of Inerco Trade. It accepted that notice was required under the force majeure clause but found that it made no difference to ADM that the 16 May notice was given 9 days after the suspension started. It considered that “commercial logic and natural justice” should prevail over “technicalities and literal interpretation” and held that in the absence of prejudice to ADM, any non-compliance associated with the 16 May notice was irrelevant.

ADM appealed three points of law under s69 of the Arbitration Act 1996, including whether serving notice was a condition precedent.

The court’s findings

The court found that serving notice within 7 days of the force majeure occurrence was a condition precedent (and had to be complied with strictly). The board’s findings had been legally wrong: the words “provided that” in the clause were “unmistakeably the language of condition precedent”. There was nothing commercially incongruous in this requirement and there was nothing in the clause that justified any implied test based on prejudice. Inerco Trade therefore had to have complied with the 7-day notice requirement in order to rely on force majeure.

The court then considered the question of when a force majeure event had “occurred”, informing when the clock would start for the 7-day notice requirement. The parties agreed that for some continuing events, the point at which an event qualifies as force majeure may not be when it starts, but only when it has escalated to the point that it meets the required standard. Inerco Trade argued that although the suspension began on 7 May 2023, what was actually “unforeseeable” for the purpose of the force majeure was a longer suspension as 1-2 day suspensions occurred not infrequently. It argued that a prolonged suspension was not apparent until 9 May 2023 at the earliest (in which case its 16 May notice had been provided in time).

The court found that the factual ruling for when the force majeure event first “occurred” (i.e. when it passed from the foreseeable to the unforeseeable) had not been decided by the tribunal and fell outside the scope of the appeal. This point was therefore remitted back to the tribunal in order to determine whether Inerco Trade’s 16 May notice had been valid.