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Some early clues about the interpretation of force majeure clauses in the context of COVID-19

Overview

The High Court's recent judgment in Fibula Air Travel s.r.l. v Just-Us Air s.r.l. [2020] EWHC 3048 provides some early clues about how force majeure clauses might be interpreted where parties seek to rely on them as a result of difficulties associated with the COVID-19 pandemic (the "Pandemic").

Although the parties' arguments on the application of the clause were only considered briefly at this stage of the litigation, the judgment reiterates some fundamental principles concerning the application of force majeure clauses and provides a useful case study for those in the air travel industry.

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Case background

The claimant, Fibula Air Travel s.r.l. ("Fibula"), chartered an aircraft from the defendant, Just-Us Air s.r.l. ("Just-Us"), pursuant to the terms of a wet lease agreement dated 9 December 2019 (the "Lease"). Fibula paid a security deposit to Just-Us under the terms of the Lease. It appears that the parties intended that the aircraft would fly between Romania and Turkey.

On 18 March 2020, Fibula was due to pay its first instalment under the Lease to Just-Us. However, one day before that payment was due, Fibula purported to terminate the Lease, relying on a force majeure provision in the Lease stating that parties would not be liable for "any failure or delay in the performance of any obligations under this agreement due to force majeure", and that the parties could terminate the Lease "in the event of a force majeure situation continuing for a period of ten days or longer".

Fibula argued that problems associated with the Pandemic constituted the relevant force majeure situation. Having purported to terminate the Lease for that reason, Fibula sought a notification injunction (which is similar to a freezing injunction in its effect) in respect of the security deposit it had paid to Just-Us, requiring Just-Us to notify any intention to deal with the security deposit. Fibula's principal argument for obtaining the injunction was that, owing to its termination of the Lease, it was entitled to the return of the security deposit, and that it could be inferred from Just-Us's refusal to give back or preserve the security deposit that there was a risk of the security deposit being dissipated pending a final judgment. It was the question of whether to grant the injunction that was before the court.

Decision and analysis

The court refused to grant the injunction. The court held that it could not infer a risk of dissipation purely from Just-Us's refusal to give back or preserve the security deposit, on the basis that it had "perfectly reasonable arguments" to retain the deposit. There therefore did not appear to be any improper conduct on the part of Just-Us for the purposes of the risk of dissipation test, and there was no other basis on which to find such a risk for the purposes of granting the injunction.

As a result, the court did not need to go on to consider whether one of the other tests to be met when seeking a notification injunction, namely whether Fibula had a good arguable case that the security deposit should be returned, was satisfied. However, in dealing with the risk of dissipation argument, the court did briefly consider the relative strengths of the parties' positions as to whether Fibula could rely on the force majeure clause to terminate the Lease. The following points are of interest:

  • In determining if and when a force majeure event might have arisen, there was much focus on the impact of the Pandemic upon flights between Romania and Turkey (which appears to have been the intended route for the aircraft). The judge noted that, as at 17 March 2020 (i.e. the date that Fibula sought to terminate the Lease), flights between Romania and Turkey had not been suspended (Turkey appears only to have announced a suspension on 28 March 2020, with Romania announcing an equivalent suspension in early April). If the Lease only covered travel between Romania and Turkey, this strongly calls into question whether a force majeure event can be said to have occurred as at 17 March 2020 (some days before the relevant flight suspensions). If the Lease was intended to cover a wider range of routes, then the analysis might have been different.

  • The judge also considered what impact any inability to fly might have had on the specific contractual obligations of the parties to the Lease.

    • As far as Fibula's obligations were concerned, on 18 March 2020 Fibula was required to pay its first instalment under the Lease (one day after it terminated the Lease). There was no evidence that anything had happened, as at that date, that would impede performance of that specific obligation. Indeed (and putting to one side Just-Us's obligations for present purposes), it could potentially be said that even a suspension of flights prior to 17 March 2020 would not have impeded the performance of the obligation to pay a sum of money – although that point was not made explicitly by the judge and may depend upon the evidence.

    • As far as Just-Us's obligations were concerned, Just-Us was not required under the Lease to start flying until 1 April 2020. There is therefore a question as to how the difficulties associated with air travel resulting from the Pandemic could have constituted a force majeure event before 1 April 2020 given that, until that date, there was no obligation on Just-Us to fly that could have been disrupted. In addition, Just-Us's obligation to fly was conditional upon Fibula making its payments under the Lease (which it did not do).
  • The parties were only entitled to terminate the Lease "[in] the event of a force majeure situation continuing for a period of ten days or longer". As such, even if a force majeure event could be said to have occurred on 28 March 2020 when Turkey suspended flights, Fibula could only elect to terminate the Lease ten days later. The judge noted that Fibula would therefore have not only been required to pay the first instalment due under the Lease on 18 March 2020, but also a second instalment due on 1 April 2020. This in turn gave Just-Us a strong argument in favour of retaining the security deposit (i.e. to set off the unpaid instalments). This was ultimately why the application for the injunction failed.

Commentary

Although it remains to be seen whether the parties' arguments will be the subject of more detailed assessment at a final trial, the court's view at this stage was that Just-Us had "strong arguments" that no force majeure event had come into existence as at 17 March 2020, despite the severe difficulties that the air travel industry was likely to face at that point.

The judgment reiterates that the English courts will closely scrutinise both the specific events that a party relies on when claiming that a force majeure event has arisen, as well as the precise wording of the force majeure clause and the broader agreement. Although force majeure clauses differ from contract to contract, they are generally drafted to relieve parties from their contractual obligations when the performance of such obligations is prevented, hindered or delayed by events beyond their control. As such, unless the drafting of the clause promotes a different approach, the court will likely scrutinise the impact that the alleged force majeure event has had on the parties' obligations. Simply pointing to the general difficulties associated with the Pandemic as a reason for being able to rely on the clause is unlikely to be sufficient. Other types of clauses, such as material adverse effect clauses, may provide alternative relief (see our recent briefing on this topic here), and other common law remedies (such as those in frustration and restitution) may also be available to parties who encounter difficulties.

Some in the air travel industry may at least be encouraged to see the court's indication that restrictions on travel may be capable of constituting force majeure events, in circumstances where the force majeure clause is silent on the types of event that might qualify (as was the case here). This is, however, a very short judgment dealing with an interim matter in the litigation. As similar cases arising out of the Pandemic continue to work their way through the courts, we can expect more detailed guidance on the interpretation of force majeure clauses in the months ahead, which will no doubt be eagerly awaited by those in the air travel industry.

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