greggiosblog

I was sufficiently frustrated by a recent LegalWeek briefing* that I immediately sat down and typed a response to the author. I haven’t sent the response – I decided I don’t want to be that person.

I also don’t want to be too harsh here – the author is relatively junior and should be applauded for trying to raise his profile. And the briefing may be fine for a non-legal audience – it provides a brief overview of force majeure in an accessible style. However, I expect that LegalWeek’s mailouts are primarily targeted at lawyers and I think the briefing is too “light” for such an audience. In that respect it’s typical of many LegalWeek briefings: it has a title that attracts interest and promises much, but generally fails to tell you anything you didn’t already know when you delve into the content.

The briefing particularly annoyed me for two reasons:
(i) It made the Editor’s picks and then a list of top downloads, so I kept getting emails about it after being annoyed on my first reading of it; and
(ii) It was prompted by a story that raises some interesting points about force majeure, but those points weren’t addressed in the briefing.

So, I decided a more constructive approach was to look a few of these aspects here and also to provide what I hope are some genuinely useful tips for drafting these clauses.

The story that prompted the LegalWeek briefing involved a fire at an oil refinery operated by Shell Singapore. According to news reports, Shell Singapore “declared force majeure on its customers”.

The briefing appears to assume that Shell has been or will be successful with this declaration. However, a declaration of force majeure is not the end of the matter. A customer can challenge that declaration and ultimately the courts may be called on to decide whether the fire is sufficient to relieve Shell from liability for non-performance of its contractual obligations.

Whether Shell is excused of its obligation to perform the contract will depend on the specific facts and an interpretation of the particular contractual provisions in the agreement between Shell and each of its customers. It’s often overlooked that force majeure is entirely a creation of the relevant contract – if your contract doesn’t contain a force majeure clause, you’re out of luck (unless you can rely on the doctrine of frustration).

If the court holds that it isn’t excused, Shell may well be in breach of contract and liable to compensate its customers for any resulting damages that they suffer. There is a hint of this in the news coverage in Shell’s statement that it is “still in discussions with its customers”.

Interestingly, English case law suggests that a supplier of a commodity product may not be able to rely on force majeure to relieve it from its obligation to supply the products in question (although it may be able to rely on an appropriately drafted clause to excuse delay in performance of its obligation).

The reason for this is that a supplier seeking to rely on a clause to protect him from liability on the basis he is “prevented” from carrying out his obligations under a contract or is “unable” to do so, must show that performance is physically or legally impossible, and not merely more difficult or unprofitable. And commodities, by their nature, can almost always be obtained on the world market (albeit at a higher price).

What does this mean for Shell? Well, it seems arguable that oil and fuel are commodities and that Shell could source fuel elsewhere to meet its obligations, even if its own supply has been affected by the refinery fire. If so, Shell may not be able to rely on the refinery fire as an event preventing performance of its obligation to supply.

As always, these cases turn on the construction of the contract in question and we can only speculate as to the outcome of a specific case in the absence of access to the contract in question. However, there are some things that we can learn from these cases and bear in mind in drafting our provisions:

• Carefully define the products you are obligated to supply. Are you undertaking to supply a general type of widget or the specific widgets that are produced in your factory at site X? The more specific the definition, the stronger your position will be if an unforeseen event affects your expected source of supply.
• Include an acknowledgement that the widgets made at site X are specific goods and not substitutable. This may help, but won’t necessarily sway a court if they disagree. Ideally therefore, you should specify what characteristics you believe differentiate your widgets from the general class of such widgets.
• Can you lower the bar? Force majeure clauses generally use wording along the lines that “a party is relieved of its obligations if an event beyond its reasonable control prevents that party’s performance of its obligations”. But your contract could provide that you will be relieved of your obligation if an event prevents, hinders, delays or otherwise materially adversely affects your performance. Or renders it substantially more costly?
• Include additional and specific events to the general list of matters that will count as force majeure. An example might be the unavailability of supply from normal sources.
• Address specific risks separately from the force majeure clause. Remember, force majeure is intended to be a general catch all for unforeseen events. Acting for a supplier we recently included a separate clause providing for specific consequences if a particular event occurred, which had an effect within a defined order of magnitude. By taking it away from force majeure, you may also avoid the pitfalls associated with reliance on force majeure for a commodity product.

• Pushing for a clear right to pass on price increases where affected by a force majeure event, rather than a right to be excused from performance. That way, if your obligation to supply survives, at least you can pass on additional costs. Giving the customer the option to accept those costs or cancel the order may make it more palatable.
• Making separate and clear provision for the consequences of events that may cause delay, but not justify non-performance – a clause providing robust protection from liability for delay in performance may be better than one providing dubious protection from liability for non-performance.

As with any provision limiting liability, clauses of this type are about allocating risk: is the supplier or the customer bearing the risk of increased prices or unavailability of supply if the defined events occur? Whether you can include provisions of the type discussed above will be a matter of negotiation between the parties. But as always, the message is: ignore the boilerplate at your peril. The standard boilerplate clauses will never be appropriate for every situation and you need to carefully consider each clause and tailor it to the situation at hand.

* I’ve linked to the original briefing, rather than the LegalWeekLaw website, which requires registration.

The UK Home Office promises in a recent press release that “migrants coming to work on temporary visas will no longer be able to apply for permanent settlement, under proposals announced today”.

I follow these announcements because I’m a New Zealander living in the UK on a Tier 1 visa. As such, I am potentially subject to the whims of the Home Office, their political masters and the seemingly 6-monthly changes they make to the immigration system.

Fortunately, due to a high profile court defeat a few years back, the Home Office has largely ceased its attempts to apply these changes retrospectively to those already in the system. I’m “grand-fathered in”, which means that I can broadly rely on the rules that applied when I first came to the UK.

So, why am I concerned about a change that doesn’t affect me? Because it strikes me as an unprincipled change without any good justification.

I’m not an expert on immigration, either from a legal or economic standpoint. But I do know a bit about legislative development (I was a policy advisor to the NZ government in a former life). The basic approach is that legislation should be passed to address a specific problem and only if the benefits of intervening outweigh the costs. That requires an information gathering process, consideration of available options, and a careful cost/benefit analysis.

So what problem is the Home Office seeking to address here? What’s the justification for this change? The full consultation paper unveils numerous statements about the aim of reducing net migration, but little by way of the reasons for that aim. We find the statement that:

“Uncontrolled settlement is detrimental to the UK; it does not deliver the best outcome for the economy or for society. Unlimited settlement can place pressure on public services.”

But we’re not talking about uncontrolled or unlimited immigration here. The visa categories the Home Office is looking to restrict have clear criteria, applicants must satisfy the Home Office that they meet those criteria in order to come here and to remain (it’s a condition of renewal and indefinite leave to remain) and caps have been introduced on the number of applications that will be accepted.

The only real attempt at a justification for the change is the following paragraph:

“A recent IpsosMori poll found that 75% of Britons believe that immigration is currently a problem and 44% thought it was a problem because of abuse of or burdens on public services. The Department for Communities and Local Government Citizenship Survey found that 78% of people thought that the number of immigrants coming to Britain should be reduced. Reserving settlement and the rights it affords, including the ability to access welfare benefits and apply for British citizenship, to those migrants who make the biggest contribution to the UK would help address these concerns.”

And there you have it. A poll reported public misgivings about immigration (immigration generally, mind you, not the specific categories concerned) and so the government is making these changes is to address those concerns. Where is the analysis of whether those concerns are valid? Whether this will actually address those concerns? Of the possible downsides of such a policy? There isn’t any. Not in this document, at least, and not anywhere else in Home Office documents that I’ve seen.

Damien Green states in the press release that: “We want the brightest and best workers to come to the UK, make a strong contribution to our economy while they are here, and then return home.” As a result, the consultation document proposes that those on Tier 2 will never be allowed to settle and will automatically require that they leave after 5 years. But if it benefits the country to have the brightest and best workers here (and surely it must), why do those benefits cease after a worker has been here for 5 years?

In direct contrast, Michael Bloomberg, the Mayor of New York is reported last week to have: “highlighted the essential role of immigrants in America’s economic growth and addressed the urgent need for Washington to put aside partisan politics and immediately pass immigration reforms needed to create jobs and fuel economic growth in a keynote speech to the Council on Foreign Relations”. (Link courtesy of John Gruber’s excellent blog DaringFireball). I don’t believe that the economic benefits of having highly skilled migrants differ between the US and the UK.

Personally, it’s difficult to see how the category of visa that I’m on can be bad for the country. To qualify to come here I need a university degree, to be fluent in English and to be able to earn enough to ensure that I’m a higher rate tax payer here in the UK. It is a condition of my visa, clearly stated on the sticker in my passport, that I can have “no recourse to public funds”. So it seems a risk free option: the country gets access to a skilled resource that costs it nothing (my education was subsidised by the NZ government, not Britain’s). If I can’t find work, it costs the government nothing – I simply have to leave and try my chances elsewhere. I guess that last bit changes once I settle here, but is there any evidence that these highly skilled workers are choosing to work for 6 years then settle here to collect benefits?

So why are these changes really being made? Quite simply: political grand-standing. There’s a public concern about immigration and the government can’t do anything about the biggest source of immigration – that from the EU. So they clamp down on the only immigration they can control, irrespective of whether it’s a good idea, because it lets them say that they’re “tough on immigration”. The clearest example was the first round of changes made to these categories of visa as a knee-jerk response to the strikes at the Immingham oil refinery in 2009. The strikes were in response to the use of low-skilled Italian and Portuguese workers there, so clamping down on highly-skilled non-EU immigrants was hardly an obvious or targeted response to the problem at hand.

It may be that this actually is the right decision for the country (personally, I doubt it, but it’s possible). I simply don’t know. But on the evidence of this consultation paper, neither does the government or the Home Office. And that’s my concern: that this is an unprincipled, ill-conceived decision, made for short term political purposes only.  And that this is symptomatic of the approach of this government to the issues it faces.

PS: I should say that I suspect that this change is driven by Ministers and not the Home Office. My experience of public policy is that there are two streams of legislative reform: those long term projects driven by the relevant department and those that the department is required to carry out by the minister. My personal view is that this is an example of the latter.