Does China Sword Trigger a Force Majeure Clause?

An April 2015 NW&RA/SWANA Joint Advisory presciently counselled “allowances for changes in the contract over time due to circumstances such as: acts of God, changes in market conditions (including but not limited to lack of commercially reasonable market availability for processed recyclables . . . and changes in law . . .). ”  Similarly, the MassDEP’s 1997 recycling Contract Template contains optional language requiring the hauler to provide “alternative recycling services and compensation to the municipality” if the contractor fails to accept recyclables because of facility or service failures “not resulting from a force majeure event.” Likewise, a municipal recycling collection/processing contract that we negotiated for a hauler in 2013 had a robust force majeure clause that excused defaults based upon “acts of government or regulatory authorities”. .  . “which substantially affect, impact or impede the Contractor’s or the Town’s operations.”

Whether you are a municipality or commercial customer reaping the benefits, or a hauler or processor whose contract is upside down, it behooves you to look into the possibility that the China Sword standard excuses performance of the contract as a force majeure event, change in law or perhaps under the contract doctrines of impossibility or frustration of purpose.

Without going into great legal detail, the bottom line is that a broadly drafted force majeure clause such as the one quoted above may excuse a hauler or processor from performance of its contract.  Under the example above, as an official standard of the Chinese Ministry of Environmental Protection, the China Sword standard is an act “of government or regulatory authorit[y]” that should qualify as a force majeure event.  If the new standard “substantially affect(s), impact(s) or impede(s) the Contractor’s operations,” the contractor’s failure to perform should be excused.  Alternatively, parties to longer term contracts may have a separate change in law clause that will require them to adjust or renegotiate price.

Absent either of these types of clauses, the parties may need to rely upon legal theories of impossibility or frustration of purpose to justify a renegotiation. However, it is worth noting that the Massachusetts courts do not favor these contract defenses where the issue is simply a change in price.  For example, in a construction dispute involving a spike in the price of steel, Judge Gordon of the Superior Court found no excuse for performance and noted that “unchanging prices and other cost-impacting conditions cannot realistically be considered implied assumptions of contracts at the time of execution, and, therefore, performance will not be excused under the doctrine of frustration of purpose merely because prices have fluctuated.”  Fargo Management LLC v. City of Worcester, Memorandum of Decision and Order on Summary Judgment, C.A. No. 2012-1028C (Worc. 2014).

For questions, call or email Tom Mackie.

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