Force majeure
Learn how force majeure clauses allocate risk for events outside the parties' control, what they commonly cover, and how to review the wording.
General information for business contracts. Legal outcomes depend on the agreement, governing law, and circumstances; obtain jurisdiction-specific advice when needed.
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Example of feedback to a force majeure clause.
Key takeaways
- The clause wording controls which events qualify and what relief is available.
- Causation, prevention or delay, notice, evidence, and mitigation requirements are often decisive.
- A disruptive event does not automatically excuse performance; governing law and the facts matter.
What does force majeure mean?
The term “force majeure” is French for “superior force” and is commonly utilised within contracts to account for and protect against unforeseeable events that make the performance of binding commercial agreements impractical or impossible.
How does force majeure work?
Force majeure is a contractual clause that refers to certain acts, events, or circumstances that are beyond the control of the parties. Force majeure typically lists events such as natural disasters or unavoidable catastrophes that end up interrupting the day-to-day operations. As stipulated within the contract, a force majeure clause will often excuse parties from the performance of the contract or even suspend part or all obligations for a period of time. As a result, parties to this contract will not be liable for the failure to perform obligations under the commercial agreement. When reviewing a contract ensure that all necessary force majeure events are listed.
Force Majeure Sample Clause
Illustrative wording, not a template: A party is not liable for a delay or failure to perform to the extent caused by an event beyond its reasonable control, provided that it gives prompt notice, takes reasonable steps to mitigate the effect, and resumes performance as soon as reasonably possible. If the event continues for 60 days, either party may terminate the affected services on written notice.
The parties should define covered events, notice, mitigation, payment obligations, and termination rights for the governing law and deal context.
Why is Force Majeure important?
Force majeure clauses are a crucial feature in any contract as it is the clause that governs and sets out expectations of each party in the event of an unforeseeable event. In turn, this gives parties the flexibility and freedom to set out the terms in which their commercial agreement will continue. Therefore, force majeure is a clause that protects parties from potential future circumstances that may seriously affect the profitability of the contract if not considered. For this reason, in force majeure clauses, it is important to include not only an explicit condition that parties will be relieved from the performance of their contractual obligations, but also to expressly mentioning all possible categories of events from which to be protected. Consider this when you review a contract.
Can Force Majeure be implied into a contract?
In most situations, force majeure clauses will not be implied into a contract and therefore cannot be relied on if there is not an express mention of the clause. Hence, ensure there is a force majeure clause when you review a contract. Depending on the jurisdiction in which the contract is stipulated to be governed, a common law doctrine of frustration could be relied on. The doctrine outlines that a frustrating event occurs when: The doctrine outlines that for an event to be considered frustrated, the following conditions must be met:
The unforeseen event occurs after the contract was signed;
The event is unforeseeable and beyond what parties could have contemplated;
Neither party is at fault;
The event must make the performance of the contract impossible or illegal;
The event must be fundamental enough to defeat the sole ‘commercial purpose’ of the contract.
Outside of common law jurisdictions, force majeure must be expressly mentioned to apply any type of protection from unforeseeable events.
Can force majeure apply to pandemics?
A pandemic or related government measure may fall within a force majeure clause if the wording covers the event and the required impact on performance is proved. Relief is not automatic: the affected party may need to show causation, comply with notice requirements, mitigate the effect, and establish that the event was outside its control. The analysis depends on the clause, timing, facts, and governing law.
Can force majeure be refused?
Depending on the circumstances, force majeure clauses can be refused depending on various factors such as the language or verbiage used within the clause. Some general guidelines for determining whether force majeure clauses are valid are the following:
The specific terminology stipulated within the contract must outline whether or not the conditions for the force majeure clause apply;
If there is a direct link to how the force majeure event hampers the performance of the commercial agreement;
The force majeure event must be beyond the control of the party claiming force majeure;
The event and its effects could not have been avoided with any reasonable step on the part of the claiming party.
Failure to comply with the technical requirements of the force majeure clause may also be another reason for a force majeure clause to be refused. For example, most contracts require a prompt notice of claim for force majeure, and without the strict compliance of technical requirements, this may be a ground for refusal.
When does force majeure not apply?
During the creation of the contract the parties will agree on the specific breaches to which force majeure applies, the application of force majeure will basically depend on this agreement. Certain breaches such as borrower’s obligation, completion of certain KPI’s, or construction goals may be stipulated to be applicable in the event of force majeure. As a result, breaches outside of those that are expressly mentioned within the contract may as a result, may be where the force majeure clause does not apply. Therefore, it is important to consider these events when reviewing a contract.
In the instances where force majeure is to be applied, one must consider whether or not there are limits or a ‘cap’ placed on the time in which the force majeure clause applies, for example, 90 days. After this stipulated period ends, the force majeure clause in turn, cannot be applied anymore. In other cases, the excusal of performing under the contract could only last as long as the force majeure event persists.
Regarding Coivd-19, if the specific terms “pandemic”, “epidemic”, or “COVID-19” are not expressly stated in the force majeure clause, there is the possibility that it will be refused. Refusal may occur if the examination of the language enables the facts and events to give rise to relief in the form of the force majeure clause. Therefore, if the clause leaves room for interpretation, it is possible that the force majeure clause will be rejected on the basis of being strictly construed.
Force majeure clauses may also be refused off the basis that parties have negotiated express exclusions to the force majeure. Some exclusions may include:
A change in economic circumstances where both parties are unwilling to excuse the lack of performance of the contract, such as: A party to the contract running out of money The performance of the contract becomes less favourable and more expensive than anticipated.
Subcontractor defaults: If the equipment or services provided by the subcontractor is not readily available to the other suppliers
Equipment failure
Banking system failure: Where the currency is restricted and in turn, prevents payments from being sent out of the country in the currency denoted within the contract The inability of a party to convert local currency to pay in the currency denoted within the contract.
A change in economic circumstances where both parties are unwilling to excuse the lack of performance of the contract, such as:
A party to the contract running out of money
The performance of the contract becomes less favourable and more expensive than anticipated.
Subcontractor defaults:
If the equipment or services provided by the subcontractor is not readily available to the other suppliers
Banking system failure:
Where the currency is restricted and in turn, prevents payments from being sent out of the country in the currency denoted within the contract
The inability of a party to convert local currency to pay in the currency denoted within the contract.
Disclaimer
Please note that this document is not legal advice. Legly, and its representatives, are not responsible for the content herein or the suitability for your company’s business. We recommend you use this in conjunction with legal advice and not as a substitute.
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