Force Majeure

Found In: Exchange Agreements | Updated: 6/16/2016

A Force Majeure clause (French for "superior force") is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. The provision may state that the contract is temporarily suspended, or that it is terminated if the event of force majeure continues for a prescribed period of time.

The list of events to be included is a matter of negotiation between the parties. A typical list of force majeure events might include war, riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion, strikes, lockouts, slowdowns, prolonged shortage of energy supplies, and acts of state or governmental action prohibiting or impeding any party from performing its respective obligations under the contract. So if, for example, a hurricane occurred that shut down a port, the seller planning to ship its goods through that port would not be liable for late delivery of the goods.

In the absence of a force majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of "impracticability" and "frustration of purpose," which rarely result in excuse of performance.

As such, the following elements should be addressed in a force majeure clause:

  • Definition of force majeure events
  • What happens when an event occurs
  • Who can suspend performance; and
  • What happens if the force majeure event continues for more than a specified period of time

1.1. Force Majeure. Neither party will be liable for performance delays nor for non-performance due to causes beyond its reasonable control, except for payment obligations.

20.10. Force Majeure

(a) No Liability. Neither party will be liable for performance delays nor for non-performance due to causes beyond its reasonable control, except for payment obligations.

(b) Best Efforts to Cure. In the event of a threatened default or default as a result of any cause beyond its reasonable control, the defaulting party shall nonetheless exercise its best efforts to avoid and cure such default.

(c) Right to Terminate. In the event such an event prevents performance thereunder for a period in excess of ninety (90) days, then the non-defaulting party may elect to terminate this Agreement and/or cancel or suspend any Purchase Orders thereunder by a written notice to the defaulting party.

1.1.Force Majeure. A party shall not be liable for any failure of or delay in the performance of this Agreement for the period that such failure or delay is

(a) beyond the reasonable control of a party,

(b) materially affects the performance of any of its obligations under this agreement, and

(c) could not reasonably have been foreseen or provided against,

but does not include general economic or other conditions affecting financial markets generally.


Did you know you can analyze your clauses
and agreements using our kResolve tool?


Discussion

Force majeure is defined generally as any event or condition, not existing as of the date of signature of the contract, not reasonably foreseeable as of such date and not reasonably within the control of either party, which prevents, in whole or in significant part, the performance by one of the parties of its contractual obligations, or which renders the performance of such obligations so difficult or costly as to make such performance commercially unreasonable.

Under most national laws, force majeure events must meet four criteria: (1) the event must be external to the contract and the parties; (2) the event must render the partyΓÇÖs performance radically different from what the parties originally contemplated; (3) the event must have been unforeseeable; and (4) the occurrence of the event must be beyond the control of the party seeking to use force majeure as an excuse for non-performance. Force Majeure Clauses: Buried in the Boilerplate But Important, Mary K. McCormick.

Courts tend to interpret force majeure clauses narrowly; that is, only the events listed and events similar to those listed will be covered. For example, while acts of terrorism might be a specified force majeure event, it does not necessarily follow that a court would also excuse a partyΓÇÖs performance based on "threats" of terrorism. Thus, it is especially important to specify any types of circumstances that you anticipate could prevent or impede your meeting from being held. Understanding Force Majeure Clauses, Janice M. Ryan.

See, Force Majeure Clauses-Revisted, DLA Piper 2012, for a discussion of a sample set of clauses.


Related Resources

    Case Law by

      Analytics