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Contract law: what to include in a force majeure clause

Apr 10, 2023 | Uncategorised

How is entering into a commercial contract like getting married? In both cases, you’re unlikely to focus on what will happen in the event of a disaster.

But disasters do happen and can affect a contracting party’s ability to fulfil their obligations. Just think of the huge disruptions to supply chains that occurred as a result of the COVID-19 pandemic.

This is where something called force majeure comes in.

What is force majeure?

Force majeure is a French phrase that literally translates as “superior force” or, figuratively, “overwhelming force”. In a contract, force majeure refers to any event or circumstances that stop a party from fulfilling its obligations – and which (crucially) are outside the party’s control.

So we’re not talking about an internal dispute or a dip in revenue. We’re talking about pandemics, natural catastrophes, industrial action, extreme weather, fires, wars, terrorism and even unexplained changes in legislation. Force majeure covers anything that hinders or prevents a party from performing according to the contract and for which they’re not responsible.

Unavoidability is key here. If the party could have avoided or overcome its circumstances then it doesn’t fall under the bracket of force majeure.

Perhaps surprisingly, force majeure doesn’t automatically refer to any of these adverse events. Each one has to be spelt out in the contract. So what do these clauses look like?

What does a force majeure contract look like?

Force majeure clauses aren’t always labelled as such. Sometimes they’re not labelled at all. That’s why it’s necessary to go through a contract with a fine-tooth comb – an activity that might be best left to experienced contract lawyers.

The force majeure clause will be one that relieves the contracting parties from fulfilling their side of the bargain when an event beyond their control has made performance inadvisable, impracticable, illegal or just plain impossible.

Given the lack of a concrete definition for force majeure, a contract can use its “definitions” section to lay out what does and doesn’t count as force majeure.

What should a force majeure contract include?

If you’re involved in drawing up any kind of contract, it can be advisable to seek expert legal advice. That way you’ll be sure to include everything you need with a minimum of headaches on your part.

That said, there are a few things that should be included in any force majeure clause:

  1. The extent of relief given if the clause is triggered
  2. Financial impact
  3. What counts as a force majeure event

If a force majeure clause is missing from a contract, it’s highly unlikely that a court will infer it. This is an example of how important it is to draft a contract thoroughly.

How do you trigger a force majeure clause?

If you trigger a force majeure clause, you bear the burden of proving that your case falls within the clause’s scope. Courts have a tendency to interpret these clauses narrowly – so you must be able to demonstrate that your failure to deliver was entirely out of your control.

As with drafting contracts, expert legal advice can be a godsend in these situations – especially when it comes to demonstrating that you did all you could to avoid or mitigate the impact of the event.

On top of this, an experienced commercial solicitor can help you reach an informed decision as to whether you should trigger the clause at all. After all, there’s no point pushing the button unless it will help you achieve your desired outcome.

What happens if a force majeure clause applies?

Exactly how things play out in the event of a force majeure clause being triggered depends on the finer details of the contract. Possible outcomes include:

  1. Suspension. This means the contracting party’s obligations are put on hold until the force majeure event is over. Once the storm has passed, the contract continues on its original terms.

  2. The right to terminate. A force majeure event may make it commercially unviable for the parties to pick up where they left off at a later date. In this situation, most force majeure clauses allow for the contract to be terminated.

  3. The obligation to mitigate. Did the affected party do everything they could to avoid or mitigate the effects of the event or circumstances? This is a key question when the clause is triggered.

  4. Non-liability. This removes the non-performing party’s liability for the duration of the force majeure event.

What’s the difference between force majeure and frustration of contract?

If your contract doesn’t contain an explicit force majeure clause, you can turn to frustration of contract. This is where an unforeseen event means that a party can’t perform – and it releases both parties from the contract.

It only applies on rare occasions in English law. In most cases, the court will rule that responsibilities and risks should have been allocated more carefully at the outset.

Conclusion

When drawing up a commercial contract, you’re likely to focus on how to get the best deal for your company. The question of what would happen if you were unable to fulfil your obligations in the event of war or a natural disaster is probably not at the forefront of your mind.

But as the COVID-19 pandemic has shown, we can all be victims of external force – and you can’t rely on the goodwill of your contracting partner in the event of a disaster. That’s why it’s so important to make a provision for force majeure in any contract you sign.

As with any other aspect of a contract, precise wording is critical. In the event of a dispute or court case, those words will be under the microscope – so they need to say exactly what you mean. This is another reason why seeking legal advice can be advisable when drawing up a commercial contract.

Are you looking for legal advice about a commercial contract? At Milners Law, our team of experienced commercial lawyers are happy to help. Please don’t hesitate to get in touch for a free, no-obligation consultation.

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