The Commercial Court in England has confirmed that a buyer still had to honour a sale agreement and that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial markets" was not an event of "force majeure" enabling him to escape its obligations.

"Force majeure" is a term used to describe the happening of unexpected events outside the control of parties such as natural disasters or the outbreak of hostilities. It is usual for contracting parties to provide in a contract that a party will not have to perform his contractual obligations (or will not be in breach for failure to perform) if he is prevented from doing so due to such events. The contractual provision will usually attempt to define which events will or will not be considered to be force majeure.

This case concerned a contract for the sale of a jet aircraft. The contract contained a force majeure clause which defined force majeure events as: "Acts of God or the public enemy; war; insurrection or riots; fires; governmental actions; strikes or labour disputes; inability to obtain the aircraft materials, accessories, equipment or parts from the vendors or any other cause beyond the seller's reasonable control" [our emphasis].

Due to a severe deterioration in the world economic situation, the buyer was unable to obtain financing to enable it to proceed with the purchase. The buyer argued that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial markets" fell within the force majeure clause therefore it did not have to honour the sale agreement.

The court confirmed that, as a general rule, a change in economic or market circumstances affecting the profitability of a contract or the ease with which the parties' obligations could be performed is not a force majeure event.

The buyer pointed to the contract wording and argued that the change in economic situation was "any other cause beyond the seller's reasonable control". The court rejected this argument. It was influenced by the fact that there was nothing in any of the specific examples of force majeure which was even remotely connected with economic downturn, market circumstances or the financing of the deal.

Further, the phrase referred to causes beyond the seller's control (not the buyer's). This suggested that it was the position of the seller that was being addressed by the force majeure clause, not the position of the buyer - and there was nothing unusual in that given that the seller had the main performance obligations under the agreement. The buyer's essential obligations were to pay the price and accept delivery. Those obligations were far less likely than the seller's to be affected by an event of force majeure.

The expression "any other cause beyond the seller's reasonable control" did not include matters with which the seller had never expected to be concerned. The seller would never have expected to be concerned with - let alone have any control over - the buyer's financing arrangements.

Finally, any inability of the buyer to obtain finance for the deal could not be said to be a "cause" beyond the seller's reasonable control. There was no causal link between the inability by the seller to control the credit markets and the buyer's inability to pay the purchase price. The phrase could only apply to a matter which had a causal link the performance of the seller's own obligations i.e. a matter which, because the seller has no reasonable control over it, caused the seller to fail to perform one of its own obligations.

It is likely that the court's decision would have been the same even if the clause had been "mutual" and referred to "any other cause beyond either party's reasonable control". The fact that it was restricted to causes beyond the seller's control just gave the court additional grounds on which to reject the buyer's arguments.

Case: Tandrin Aviation Holdings Ltd v Aero Toy Store LLC and another [2010] EWHC 40