What is a force majeure clause?

Apr 11, 2017 | Business Contracts, Commercial Contracts

What is a Force Majeure clause?

What does Force Majeure mean?

It is a French phrase that means ‘superior force’.

It is clause that is used in contracts to make it clear that if a random event occurs (i.e. an event brought about by a ‘superior force’ – such as an act of God, or an act of nature) then the parties to that contract do not have to perform under the contract until the random event is over.

What is the purpose of a Force Majeure clause?

The purpose of such clauses is to allow both parties out of a contract when an event occurs that neither party had thought about or contemplated but which has the effect of making it impossible to perform under the contract.

Most well drafted Force Majeure clauses refer to acts of God, acts of nature, strikes, war, natural disasters and now (unfortunately) acts of terrorism (Trigger Events).

This means that if one of those Trigger Events was to occur then both parties to the relevant contract no longer have to perform under the contract until the relevant Trigger Event has finished.

Why would I want a Force Majeure clause in a contract?

This is an easy one. If there is no Force Majeure clause in a contract and a natural disaster occurs then you still have to perform under the contract but the natural disaster might make that impossible. Let’s use an example.

Say a flood badly damages your shoe factory, such that you can now no longer make your shoes. If you have supply agreements with customers promising them that you will supply so many shoes per month you are still obligated to supply those shoes, so you would be in breach of that contract by not being able to fulfil your contractual obligations (of providing the required number of shoes every month).

The other party (i.e. the recipient of your shoes) could then sue you for breach of contract and look to claim compensation from you.

If you had a Force Majeure clause in the contract you would be ‘let off’ performing under the contract until the event had subsided, i.e. until you had a chance to repair your factory.

Should I have a Force Majeure clause in a contract?

If your contract requires performance over a period of time (such as production and supply of goods, construction of a building, or design and installation of a new IT system) or is high value, then you should absolutely have a Force Majeure clause in your contract.

What does a Force Majeure Clause look like?

Here is an example of a Force Majeure clause:

If either or both parties are prevented, hindered or delayed from performing their obligations under this Agreement by an Event of Force Majeure, then as long as that situation continues, that party will be excused from performance of its obligations under this Agreement to the extent it is so prevented, hindered or delayed by the Event of Force Majeure.

The party affected by an Event of Force Majeure will immediately give the other party a notice of its occurrence and its effect or likely effect, and use all reasonable endeavours to minimise the effect of the Event of Force Majeure and to bring it to an end.

 Event of Force Majeure means the occurrence of an event or circumstances beyond the reasonable control of a party affected by it including (without limitation):

  1. a war (declared or undeclared), insurrection, civil commotion, military action, or an act of sabotage;
  2. a strike, lockout or industrial action, dispute or disturbance of any kind;
  3. an act of terrorism;
  4. an act of a government or an authority;
  5. an act of God or an act of nature; or
  6. a storm, tempest, fire, flood, earthquake or other natural calamity.

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