Force majeure: general assertions as to impact of Covid-19 and Brexit not sufficient to defeat summary judgment application

The High Court has entered summary judgment in favour of a port operator against a sea ferry operator for the payment of a shortfall due for a failure to meet minimum volumes. The court rejected an argument that the operator could rely on a force majeure defence in light of Brexit and the Covid-19 pandemic: PD Teesport Ltd v P&O North Sea Ferries Ltd [2023] EWHC 857 (Comm).

This decision is a useful reminder that, while the Covid-19 pandemic and/or Brexit may be categorised as force majeure events, whether a force majeure clause is triggered will depend on a close analysis of the wording of the clause. Where the clause requires specific conditions to be met, it will be insufficient to rely on broad assertions as to the impact of the Covid-19 pandemic and/or Brexit.

In the present case, the force majeure clause required the claimant to have been affected by a force majeure event, and for that same event to have prevented the defendant meeting the minimum volumes guaranteed under the agreement. On the facts, the defendant had not established that it had a real prospect of showing that Brexit or the Covid-19 pandemic had affected the claimant, and thus the defendant could not rely on the force majeure clause.

The case also touches on obligations of good faith, emphasising the need to plead the content of an alleged good faith obligation and particularise any alleged breach.

Background

In 2021, the operator of Teesport, a sea port in Teesside (the "Claimant"), entered into an agreement with a sea ferry operator (the "Defendant"), under which the Claimant was to be paid a fee in return for permitting the Defendant to use the port and for providing it with services (the "Agreement"). Under the Agreement, the Defendant guaranteed to import or export via the port a minimum volume of 120,000 units per year (the Minimum Volume Guarantee or "MVG"), failing which it would need to pay a shortfall payment per unit (the "Shortfall Payment").

The Agreement contained provisions that:

1. if it was impossible for the Defendant to achieve the MVG in 2021 "solely due to economic factors resulting from the UK's exit from the European Union", the parties had to attend a meeting inter alia to "reasonably consider any amendment" to the MVG for 2021 (the "Brexit Clause"); and
2. if a force majeure event affecting the Claimant prevented the Defendant from importing or exporting units at the port, the relevant number of affected units was to be deducted from the MVG for that year (the "Force Majeure Clause"). The definition of force majeure expressly included Covid-19 pandemic events, as well as other "circumstances beyond a party's reasonable control".

The Defendant did not meet the MVG in 2021. In January 2022 it requested a meeting to discuss the 2021 MVG "in the spirit of" the Brexit Clause. A meeting was held but the parties failed to reach agreement on a reduction in the MVG.

By email dated 4 February 2022, the Claimant stated that its position remained that the Defendant had not demonstrated that its failure to achieve the MVG was solely due to economic factors resulting from Brexit. It contended that the reason was rather a "variety of self-inflicted difficulties", and that all other sea ferry operators had rather reported an increase in volumes during 2021.

The Claimant brought a claim for payment of the Shortfall Payment and applied for summary judgment.

At the summary judgment hearing, the Defendant contended that it was not liable to pay the Shortfall Payment for two reasons:

1. The Claimant failed to meet in good faith and reasonably consider amendments to the MVG, in breach of the Brexit Clause. The good faith obligation arose from the express obligation found in the Brexit Clause, a separate clause which provided that the parties had to attempt "promptly and in good faith to resolve" any dispute about payment, or an implied obligation of good faith due to the Agreement being a relational contract.
2. The Covid-19 pandemic and the need to adapt to post-Brexit transition arrangements had reduced customer orders, and Covid-19 social distancing measures had also limited the number of units the Defendant could transport, which engaged the Force Majeure Clause and accordingly reduced the MVG.

Decision

The High Court (HHJ Klein sitting as a High Court judge) found that the Defendant did not have a real prospect of defending the claim, and so entered summary judgment in favour of the Claimant.

The Brexit Clause

The court held that, while the Defendant argued that the parties were required to consider any amendment to the 2021 MVG in good faith, it did not plead the content of that good faith obligation and did not particularise how the Claimant breached that good faith obligation. This was a significant omission because, apart from a core honesty obligation, a good faith obligation could be conditioned by its context (Re Compound Photonics Group Ltd [2022] EWCA Civ 1371, considered here), and the Defendant did not allege that the Claimant had been dishonest.

In any event, the court found that the Claimant had considered the amendment to the 2021 MVG in good faith, rejecting the Defendant's allegation that the Claimant had always had a closed mind to the possibility of any amendment. The 4 February email supported the Claimant's rather than the Defendant's case, as it showed that the Claimant had comprehensively considered the causes of failure to meet the MVG.

It therefore did not matter in this case: (i) whether or not there was an obligation on the Claimant to act in good faith; or (ii) whether or not the contract was a relational contract.

The Force Majeure Clause

The court noted that, although Brexit was not expressly provided to be a force majeure event, it was prepared to assume that it fell within "circumstances beyond a party's reasonable control" and was therefore a Force Majeure event for the purposes of the clause.

Although the Defendant did not properly set out its case on force majeure, the court inferred that its position was that the clause should be construed so as to operate if: (i) a force majeure event affected, or was capable of affecting, the Claimant; and (ii) a force majeure event in the same category (such as Covid-19 or Brexit) prevented the Defendant from transporting units.

The court rejected that construction, instead finding that the Force Majeure Clause operated if: (i) there was a force majeure event which had affected the Claimant (it was not sufficient if it was capable of affecting the Claimant); and (ii) that same event (not merely an event in the same category) had been the cause of the Defendant's inability to transport units.

On the facts, the Claimant contended that it had not been affected by either the Covid-19 Pandemic or Brexit in 2021. The Defendant did not produce evidence to support its general assertion that these events had affected the Claimant, merely arguing that the impact of these events was notorious and asking the Court to take judicial notice of those impacts and thereby infer that they affected the Claimant. The court found that whilst it could take judicial notice of the fact that these events had, at times, had an impact on individual travel, it knew nothing about the effect of either matter on the operation of freight ports in 2021. The available evidence suggested that neither matter affected the operation of freight ports at that time, at least significantly.