Clauses addressing “force majeure” in contracts can provide the breaching party with protection against claims for monetary compensation (and sometimes more), in cases where performance of the contract becomes impossible due to circumstances beyond the parties’ control. Force majeure can be defined broadly (any event, such as war, strike, weather events, etc.) or narrowly, depending on the parties’ agreement.
In the absence of a specific clause in the contract, Article 79 of the United Nations Convention on Contracts for the International Sale of Goods (CISG)—which covers a significant portion of international trade and was incorporated into Israeli law via the Sale (International Sale of Goods) Law, 1999—provides a “default arrangement.” It stipulates that a party will be exempt from paying damages to the other party for non-performance if it proves that the non-performance was due to an impediment beyond its control, and that it could not reasonably have been expected, at the time of contract formation, to have taken the impediment into account, prevented it, or overcome it or its consequences.
Similarly, a parallel provision in the Contracts Law (Remedies for Breach of Contract), 1970, which applies to domestic (non-international) transactions, provides that if the breach of contract was caused by circumstances that the breaching party could not have known about or foreseen at the time of contract formation, and could not have prevented, and performance is impossible under the circumstances—the aggrieved party cannot claim damages.
Courts, both in Israel and abroad, have tended to interpret such clauses very narrowly, granting a party relief from its contractual obligations only in exceptional circumstances.
Israeli case law has established that the following circumstances do not justify exemption from contractual obligations (i.e., are not considered force majeure): heavy rain causing damage to cargo; a crack discovered in an aircraft causing a flight delay; malfunctions in a ship’s sewage and air conditioning systems during a Mediterranean cruise; and even an economic crisis leading to a company’s collapse.
And What About War?
In the late 1970s, the Israeli Supreme Court held, as a general rule, that a state of war in Israel does not constitute grounds for frustration of contract (CA 715/78). However, about twenty years later, it was determined that each case must be examined individually, considering the foreseeability of the war event and its impact on the contractual relationship between the parties (CA 6328/97 Regev v. Ministry of Defense, 2000).
A particularly interesting case was heard in Israeli courts about 15 years ago concerning cargo transportation. A commercial company entered into a shipping agreement with a shipowner for the transport of methanol from Libya to Turkey. The agreement was concluded via email correspondence during the Second Lebanon War.
The shipowner failed to meet the agreed schedule, arriving at the loading port ten days late. Additionally, due to the ship’s inclusion on Libya’s Arab boycott list, the cargo was further delayed, and the quantity of methanol transported was less than agreed.
The company sued the shipowner in various jurisdictions, including Israel, claiming significant damages for breach of the shipping agreement—specifically, for failure to meet the agreed schedule and for breaching the ship’s seaworthiness, as the ship was promised to be fully seaworthy, which was not the case.
The shipowner argued in response that the delay in reaching the loading port was due to the circumstances of war, and that the ship’s denial of entry to the port was covered by an exemption clause in the agreement and by law.
The District Court held that since the agreement was concluded during the Second Lebanon War, the shipowner was aware of the state of war, and therefore should have explicitly stated any reservation in the exemption clause it relied upon; since it did not do so, the exemption clause did not apply.
However, the court ruled that regarding the denial of the ship’s entry to the port due to Libya’s Arab boycott, the exemption clause did apply. The court awarded the company compensation for the shipping delay in the amount of $100,000 plus interest, as well as expenses of approximately $2,500, £11,000, and legal fees and costs of NIS 20,000.
Both parties appealed to the Supreme Court. The shipowner appealed the judgment, arguing that the reservations in the agreement justified the delay in shipping the cargo.
The Supreme Court upheld the District Court’s ruling and dismissed the shipowner’s appeal. The Court essentially held that a delay in cargo transport due to war is a foreseeable event and cannot grant the shipowner exemption from contractual performance, especially where the contract was signed when the war was known to both parties.
Judgment: VITOL ENERGY S.A. v. TRANS KA TANKERS MANAGEMENT CO LTD, CA 1206/12 (15.2.13, Justices A. Rubinstein, H. Melcer, D. Barak-Erez)
War and Flight Cancellations
Since the outbreak of the “Iron Swords War”, small claims courts in Israel have heard lawsuits against airlines for flight cancellations. Section 6(e) of the Aviation Services Law (Compensation and Assistance for Flight Cancellation or Change of Conditions), 2012, provides that a passenger whose flight was canceled is not entitled to monetary compensation if the airline proves that the flight was canceled due to extraordinary circumstances beyond its control, even if it had done everything possible to avoid the cancellation.
A Tel Aviv Small Claims Court case (38042-05-24 Yigal et al. v. Air Canada) addressed the question: “Does cancellation of a flight by an airline due to a state of war in the country of origin or destination entitle the airline to exemption from compensation under the law?” The court also examined whether there is a difference between a situation where the flight was canceled due to the outbreak or escalation of intense warfare close to the flight date, and a situation where the flight was canceled during a period of “routine warfare” due to a change in airline policy.
The Court’s Main Findings
When it comes to intense warfare—one that mobilizes society and the economy for its needs and sometimes puts the home front on the front lines—the tendency should be to recognize the exception in Section 6(e)(1) of the law in cases where the flight was indeed canceled due to the war situation and its constraints; that is, to exempt the airline from the obligation to pay monetary compensation.
The court further held that there are also cases where the flight was scheduled during a phase of “routine warfare,” when hostilities had subsided (at least in central Israel), the economy had resumed operations (even if not fully), and many airlines had resumed flights to and from Israel. This is different from cases where the flight was scheduled during the initial and intense phase of the war.
Even in such cases, the court held, the exemption from compensation may apply, but the balancing point changes: “If, in the initial and intense phase of the war, the starting point was that war events generally constitute extraordinary circumstances warranting the exemption… then during the ‘routine warfare’ phase, the airline must show that the event prompting the flight cancellation indeed materially changed the situation and created a real impediment or danger to flying to or from Israel.”
The content in this update is provided for informational purposes only and is not intended to be comprehensive. It does not serve to replace professional legal advice required on a case by case basis.
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