Russia’s decision to ban grain exports will be welcomed by some physical grain traders because it allows them to declare “force majeure”, walking away from wheat supply contracts that had become increasingly uneconomic to perform.
Force majeure was originally developed as a doctrine under civil law systems. There is no automatic or general right to invoke force majeure in the common laws of England and New York that govern most international commodity supply contracts.
The common law equivalent is “frustration”. Lawyers have spent many happy and profitable hours arguing what does and does not constitute frustration. It is a narrower definition than force majeure — and much harder to prove.
But something similar to force majeure can be incorporated into a contract by the specific agreement of the parties. Lawyers advising commodity traders will always ensure that a carefully worded force majeure (FM) clause is included in every commodity supply agreement to enable the supplier to walk away if the contract becomes too onerous to perform.
The first step is to define the goods to be supplied very carefully. Assume Trader A has contracted to supply wheat to Country B that it intends to source from Country C. If the contract is merely for the supply of “wheat” meeting certain quality standards, an export ban would not enable an FM clause to be invoked.