Before you read on, please note that this post is not for the faint hearted. This clause is really important in any contract and I’m going to try and give you a full explanation of it.
Force Majeure translates to a “superior or irresistible power” in the beautiful French language. In English law, it refers to a clause in a contract which protects the parties from their contractual obligations in circumstance where that contract, by no fault ofthe parties, becomes impossible to perform. In such a scenario, the parties will usually have the right to terminate the contract or to suspend the contract, if the impossible circumstances are likely to come to an end within a certain time frame. This is a very useful clause when faced with the effects of acts of God (tornadoes, lightning strikes, floods), governments and regulatory authorities – none of which give a hoot about your contracts!
There are generally three essential elements to an event being determined force majeure:
- It can occur with or without human intervention.
- It cannot have reasonably been foreseen by the parties (for example your machine breaking down is foreseeable and so is not a force majeure event).
- It must have been completely beyond the parties’ control so that they could not have prevented its consequences (for example a riot, like the London riots).
A very basic force majeure clause will look as follows:
“A party (affected party) shall not be liable to the other party for any failure to perform the Agreement caused by circumstances outside the reasonable control of the affected party.”
What exactly is “circumstances outside the reasonable control of the affected party”? Well the answer is, how long is a piece of string! This is where your lawyer steps in. Over time, lawyers have come up with a list of events which are generally considered to be force majeure events. These events are as follows:
- Fire, flood or other natural disaster;
- malicious injury;
- strikes, lock-outs or other labour troubles;
- insurrection; and
However, please note that the above list is not exhaustive so lawyers have also taken to adding sweep up language to cover anything else that might occur with force majeure characteristics. For example many clauses end their list with “ and any other reason of like nature not the fault of the party in performing the contract”.
The better force majeure clauses oblige the party relying on the force majeure event to do certain things so as to help the contract to survive as far as possible. The relying party must usually promptly notify the other party of the force majeure event. The relying party is then only excused from the contract for the period of the delay caused by the force majeure event. During that time, the relying party must take what steps it can to mitigate the effects of the force majeure event on the contract. In other words, the relying party must do its best to find another way, where possible, to fulfil its contractual obligations. HOWEVER, the period of delay can’t go on forever, so where the force majeure event exceeds a certain timeframe the party entitled to the performance of the relying party may terminate the contract. For example “if any delay exceeds six months, then the party entitled to such performance shall have the option to terminate this Agreement”. Such force majeure clauses are GRADE A (my own personal labelling)!
Let’s consider an illustration of a GRADE A force majeure clause.
- Happy Fruits Ltd and Love Fruits Ltd are in a contract for the sale and purchase of fruits. Happy Fruits Ltd sells fruit to Love Fruits Ltd.
- Under the contract, Happy Fruits Ltd must provide Loves Fruits Ltd with a case of tomatoes by X date.
- Before X date, a flood occurs making the delivery of the tomatoes impossible.
- The contract contains a GRADE A force majeure clause, therefore as soon as Happy Fruits Ltd learns that the flood is preventing the delivery of the tomatoes to Love Fruits Ltd by X date, it must notify Love Fruits Ltd of the flood in writing, stating a “force majeure event”.
- Happy Fruits Ltd must then attempt to mitigate the effects of the flood on its delivery to Love Fruits Ltd. For example, it must try to supply the tomatoes to Love Fruits Ltd from another branch not affected by the flood, or from another supplier with similar produce.
- If Happy Fruits Ltd cannot mitigate in the manner above, it must at the very least strive to deliver the case of tomatoes at the next available opportunity. So for example, if the flood passes a day after X date and all modes of transport go back to normal, Happy Fruits Ltd must do its best to deliver the tomatoes to Love Fruits Ltd on that date.
- If Happy Fruits Ltd fails to deliver at the next available opportunity or to reasonably mitigate against the impact of the flood on its contractual obligations, Love Fruits Ltd could have a claim for damages under the contract. That’s right. Even though the flood has nothing to do with Happy Fruits Ltd, Happy Fruits Ltd may still be on the hook. However, Happy Fruits Ltd only has to do what it can reasonably do. In English law, reasonably is pretty broad and forgiving. This is why this type of force majeure clause is Grade A, it offers just enough protection AND wriggle room to both parties.
- If the effects of the flood surpass the force majeure cut off point then Love Fruits Ltd may terminate the contract.
Hopefully you followed that! Basically each and every business contract should have one of these clauses in them! You just never know what might happen out of your control that may prevent you from performing your side of the contract. In such a scenario, you do not want to be contractually liable for anything. In recent years, a new force majeure event has sadly come to the forefront – acts of terrorism, the effects of which are devastating. Get your lawyer to review your contracts to ensure that you are adequately protected.
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