Force majeure clauses are coming under increasing scrutiny in the light of the global COVID-19 crisis, as many businesses are left unable to perform their contractual obligations. The High Court's recent decision in the case of 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [2020] EWHC 972 (TCC) provides an important reminder of the limits of force majeure clauses.
The case
Sony owned a warehouse from which it provided storage and distribution facilities to 2 Entertain. The warehouse and its contents – over 20 million CDs and DVDs - were destroyed during an arson attack as part of the 2011 London Riots. 2 Entertain claimed that Sony was in breach of their agreement and sought to recover its loss. Sony's argument that the fire was an event which triggered the force majeure clause was rejected by the court; though the riots and fire were themselves 'unforeseeable' (and were referred to expressly in the clause as potential force majeure events), the court held that Sony should have taken more steps to prevent the fire. In particular, the agreement required Sony to ensure that adequate security measures were in place and that the goods were kept in a secure location; however, the warehouse security was insufficient and therefore the court held that the primary cause of damage was negligence on the part of Sony, rather than the fire.
What we can learn from this case
This case is an important reminder that force majeure clauses generally won't protect businesses which could have reasonably taken action to avoid the type of problem or event set out in the clause, but failed to do so. Although it is likely that in many cases the ongoing COVID-19 crisis will constitute an 'unforeseeable' event outside of a party's reasonable control, those affected will often also be expected to continue to take reasonable steps to comply with those terms of the agreement which they can still perform and to mitigate the effects of any non-performance as far as possible. Ongoing review and communication between the parties is therefore vital given the dynamic nature of the crisis and will become even more important following the imminent relaxation of the UK government's lockdown measures. For our thoughts on what the easing of the UK's lockdown policy might mean for businesses (including the impact on force majeure clauses), see our recent post.
