Force Majeure

A concept in contract law that describes a clause that frees the parties to the contract from their contractual obligations in the event of highly unusual and unforeseen circumstances

What is Force Majeure?

Force majeure is a concept in contract law that describes a clause, included in many contracts, that frees the parties to the contract from their contractual obligations in the event of highly unusual and unforeseen circumstances.

The force majeure clause is triggered into effect by an extraordinary event or the occurrence of an extreme set of circumstances that is completely beyond the control of the parties to the contract and that makes it impossible for the contract to be fulfilled.

 

Force Majeure

 

Examples of events that might trigger a force majeure clause into effect include a declaration of war, a disease epidemic, or a hurricane, earthquake, or other natural disaster events that fall under the legal term, “act of God.”

It is important to note, however, that the mere occurrence of such events is not sufficient to trigger a force majeure clause. It must also be the case that the catastrophic event directly prevents at least one of the parties to a contract from fulfilling their contractual obligations.

 

Summary

  • Force majeure is a concept in contract law that describes a clause, included in many contracts, that frees the parties to the contract from their contractual obligations in the event of highly unusual and unforeseen circumstances.
  • Force majeure clauses in contracts commonly spell out the specific types of events or circumstances that the contracted parties agree would constitute a force majeure.
  • The COVID-19 pandemic represents a classic example of a force majeure event.

 

The Application of Force Majeure

Force majeure, in French, means “major force” or “greater (or superior) force.” The concept originated in the civil laws of France – part of the Napoleonic Code – and has since become part of common law in most countries across the world, from the United States to Singapore.

As a provision in contract law, there are several key elements that must be present for the force majeure clause to apply:

  • The event or set of circumstances must be extraordinary – highly unusual – in nature.
  • The event or circumstance must materially impact the ability of the parties to the contract to fulfill their contractual obligations; the net effect must be to render performance of the contractual obligations of one or both parties either extremely inadvisable, commercially impractical, illegal, or outright impossible.
  • It must be the case that the occurrence of the force majeure event or circumstance could not have reasonably been anticipated by either party to the contract, and that, in any event, it was totally outside of the control of both parties to the contract.
  • The party or parties whose contractual performance ability is impaired must have done all that they reasonably can to reduce the impact of the force majeure event – in other words, they must have made reasonable attempts at a “workaround” to overcome the resulting difficulties.

 

A force majeure clause in a contract usually specifically spells out the type of events or circumstances that the parties to the contract agree would constitute a force majeure occurrence and trigger the clause into effect.

Force majeure provisions do not always completely relieve contractual parties of all their obligations (thus, effectively rendering the contract void). For example, if widespread civil unrest made it physically unsafe for a supplier to deliver goods as called for in a contract with a buyer, then the contract’s force majeure clause might only relieve the supplier of the obligation to deliver goods according to the time schedule delineated in the contract.

They would still be expected to deliver the goods at some point, i.e., whenever the civil unrest subsided to a point where the delivery was reasonably possible and would not expose the supplier or their employees to extraordinary danger.

Also, if partial performance of a contract has already taken place prior to a force majeure event occurring, then any payments due to one party or the other for that partial performance would still be required to be made.

 

Practical Example

Companies ABC and XYZ enter into a contract whereby the former will supply the latter with the necessary component parts that ABC imports from the only country where the parts are produced and that XYZ uses in the production of goods that it sells.

Since the items that Company ABC is contracting to supply to Company XYZ are imported from another country, the companies might include a force majeure clause in their agreement that specifically references unforeseeable political actions that might render Company ABC incapable of fulfilling its contractual obligations.

For example, a political conflict might lead the government to place an embargo on importing any goods from the country Company ABC gets the parts from. The embargo, which is obviously completely beyond the control of both companies, would make it impossible for Company ABC to secure the parts that it has contracted to supply to Company XYZ.

In such an event, the force majeure clause in the contract would relieve Company ABC of its obligations to Company XYZ, at least for the period of time that the embargo remained in effect.

On a humorous note, there is actually a case in English law where a court declared that an unfavorable outcome of a football match does not constitute a force majeure event.

 

COVID-19 and Force Majeure

The COVID-19 pandemic constitutes a force majeure event for many individuals and companies. Accordingly, many people and corporate entities are seeking relief from contractual agreements they previously entered into before the Covid-19 pandemic.

Force majeure contract clauses effectively triggered by the pandemic are likely to happen in circumstances where the lockdown and quarantine requirements imposed by the government make it impossible for one or both parties to fulfill their contractual obligations.

However, it’s important to note that just a general downturn in business conditions, such as a recession, is not considered sufficient grounds for a party to claim relief under a force majeure provision in a contract.

 

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