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Volcanic ash clouds - an explosion of claims?

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Volcanic ash clouds stopping all air travel sounds like something out of a science fiction novel, but it has very real consequences for any business relying on international travel or dispatching or receiving goods by air freight.

Volcanic ash clouds stopping all air travel sounds like something out of a science fiction novel, but it has very real consequences for any business relying on international travel or dispatching or receiving goods by air freight.

Many businesses have been affected, from supermarkets losing supply of fresh produce to factories stopping production due to undelivered components.  Unforeseen events hampering a party's ability to fulfill its obligations under a contract are of course not unique to volcanic eruption. The Icelandic volcano may be an extraordinary natural event but examples of other events which may give rise to similar disruption to individual businesses could include a fire at business premises, flooding or strike action.

Where a party is unable to deliver on its contractual obligations it may be able to claim ‘force majeure', literally a "superior force", on the basis that the event is beyond the business' reasonable control.  Force majeure may suspend or excuse a party's performance. There is, however, no general right to be able to claim force majeure. If force majeure is to apply, this must be explicitly included in the contract (including a definition of what constitutes a ‘force majeure').  If there is no force majeure clause and the business fails to deliver on time, the other party to the contract may be entitled to claim damages or perhaps even terminate the contract.

In the vast majority of cases a solution to business problems caused by unforeseen events is found by agreement, in which forward planning including good contract drafting and having a practical "plan B", e.g. an alternative source of supply, will assist. However, there will be some affected businesses which have suffered significant losses where a claim may be inevitable. Any business wishing to bring or protect itself from claims for losses arising from circumstances outside its control should review relevant contracts.  Indeed, it is sensible to review key contracts on a regular basis.  Often contracts have provisions requiring immediate notification and a failure to comply with these can render a subsequent force majeure argument redundant. Any relevant insurers should be notified immediately so that claims can be dealt with. The affected party also has a duty to act reasonably to mitigate its loss, for example by obtaining supply from another source. Evidence should be kept of the claim e.g. records of customer orders turned away and of the mitigation e.g. copies of quotations from alternative suppliers.

Europe may remain at the whim of volcanic ash but claims can often be managed if not avoided.

If you wish to discuss any of the issues in this article, please contact Simon Young, partner and head of Clarion's commercial dispute resolution team, on 0113 222 3206 or simon.young@clarionsolicitors.com

This article was featured in The Yorkshire Post - 25 May 2010.

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