FORCE MAJEURE

What is force majeure?

Different legal systems have developed various theories to deal with the need of contracting parties to excuse themselves from contractual obligations should events beyond the parties control inhibit the said parties from fulfilling the said obligations

Force majeure is an example of such a clause in a contract

Let’s say you contract to build a school in a given area or supply cereals to a given institutions and the area floods as a result of a hurricane. This could mean lack of contractual fulfillment on your part and not because you decided to, rather because you are unable to. Force majeure comes in under such circumstances.

The clause is based on the idea that “nobody is held to the impossible” (ad impossibilia nemo tenetur) which gives us the principle of possibility is the limit of expectations.

Force majeure is an event that is unforeseeable, unavoidable and external that makes execution impossible.

When defining the term, general definition often includes “risks beyond the reasonable control of a party, incurred not as a product or result of the negligence of the afflicted party, which have a materially adverse effect on the ability of such party to perform it obligations”

Force majeure may certainly be due to a natural disaster for instance an earthquake, but also to situations having their root to human cause such as war, a revolution, mob violence etc 

The clause aims to free both parties from their contractual obligations if events beyond the parties’ control, basically act of God, make it impossible for the parties to fulfill the said contractual obligations.

There are 3 elements that generally make an event a force majeure:

1. The event occurs with or without human intervention
2. The event could not have been reasonably foreseen by the parties
3. The event was completely beyond the parties control and they could not have prevented its consequences

Are force majeure standardized?

People tend to treat force majeure as standard contractual terms that cannot be changed, this is not always the case.

The reality is this clause is a creature of contract meaning that its interpretation will depend on the circumstance surrounding the contract and the law under which the said contract is drafted.

When getting into a contract and this clause is in the contract you have to carefully look at how the clause is crafted, remember the objective of the clause is to excuse a party from carrying out its obligations and people (lenders) who finance projects don’t like it when they do not get returns on their investments due to lack of performance.

Issues to consider when using this clause

1. Have you properly defined what constitutes a force majeure in the contract or is it ambiguous?
2. Who will bear the risk should the clause become active?
3. What are the consequences of the force majeure event? The affected party should be under express duty to minimize the impact of events mentioned in the change
4. To what extent if any should the contractor continue to be paid even where it is unable to perform its obligations?
5. Should there be a termination in case of extended force majeure events?

Conclusion

This clause works to excuse all or part of the obligations of one or both parties, for instance floods may prevent timely delivery of goods, but not timely payment of the portion delivered.

Because of the various definitions of force majeure it is wise for the contracting parties to define what the term will mean in the contract they intend to have. Remember this clause is not standard, English common law, for instance, doesn’t automatically apply it to contracts.