Out of control: Is a delay by a subcontractor or supplier a delay beyond your control?

Commercial Directions

Yara Nipro Pty Ltd v Interfert Australia Pty Ltd [2010] QCA 128

Companies in every industry may face delays caused by weather, suppliers, sub-contractors and other unforeseeable delays. Contracts often consider the occurrence of such delays by providing a ‘force majeure clause’ for instances where delay is considered to be beyond the reasonable control of either party. A recent Queensland Supreme Court decision has highlighted that in such circumstances the drafting of a clause will play a crucial role in assessing whether a ‘force majeure clause’ will operate to limit liability for delays caused by events seemingly outside either party’s control.

In brief

  • Interfert Australia Pty Ltd (‘Interfert’) agreed to supply Yara Nipro Pty Ltd (‘Yara’) with goods. Interfert then sub-contracted with another supplier, who agreed to supply Interfert with the required goods
  • The sub-supplier failed to deliver the goods to Interfert, and Yara then sought to hold Interfert liable for the subsequent failure to supply it with the goods
  • Interfert attempted to rely on a force majeure clause and argued that the failure of the sub-supplier to deliver the goods was out of their control
  • The clause provided that neither party would be liable for any delay in or failure to perform any of its obligations under the contract ‘if such a delay or failure was caused by circumstances beyond that party’s reasonable control’. The clause contained a non-exhaustive list of circumstances which would constitute a delay, including ‘non-supply to Interfert of product’
  • The Court held that Interfert was liable for the damage despite the existence of the clause because the phrase ‘non-supply to Interfert of product’ did not ‘direct attention only to the arrangements Interfert had made to obtain product from a particular supplier’. The clause was conditioned on the further requirement that Interfert needed to prove that the non-delivery was ‘caused by circumstances beyond its reasonable control’
  • Interfert could have avoided the delay by sourcing the product from another sub-supplier
  • As such, the delay was not caused by circumstances out of Interfert’s reasonable control and therefore, the Court found that it would have been reasonable to source the goods from another supplier.

How does it affect you?

To benefit from a force majeure clause in the case of non-supply by a particular supplier, such non-delivery will have to be explicitly expressed in the relevant clause. The case also highlights the importance of proper drafting of contractual clauses if they are sought to be relied upon at a later time.

Authored by Sean O’Sullivan, Partner, Newcastle.


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