What is a Force Majeure Clause?
The literal translation of the term Force Majeure is “superior force” from French. When written into contracts, it addresses what should happen in the occurrence of unforeseen circumstances that were not initiated by either party. A Force Majeure Clause can address events such as war, riots, or an employee strike but it can also cover general categories such as hurricanes and flooding (which are considered “acts of God”). Depending on proper enforcement and what the clause specifies in the contract, it could potentially excuse both sides from their obligations under the contract.
The addition of this clause is highly important for any business entering into any contract. Not only does it aid in these unforeseen events but it may also help the business deal with a vendor or client that is trying to get out of fulfilling their end of the contract. It should be noted that the mere occurrence of the event does not initiate the clause. It must be proven that the catastrophe directly prevents at least one of the parties from fulfilling their contractual duties.
Due diligence is required as It is not always clear when the clause is applicable. For example, maybe our governing bodies have not officially declared our country to be at war but similar conditions to a war-like atmosphere has stopped production. Our most current example, the coronavirus has impeded our supply chain and has made a deep impact in our respective areas. If the parties cannot agree to what the fore majeure applies, then they must take it to court. Some factors that the courts are looking for to determine where the clause applies:
- Evidence must be procured to establish the event was unforeseeable or highly unusual.
- That the force majeure event was not caused by either party to get out of their contractual obligations.
- Evidence that the impact the event had was so damaging that the obligations in the contract cannot be performed.
- The party or parties that have been impaired by the Force Majeure must show they reasonably tried to do all they could to overcome the difficulties.
It is impossible to predict all disastrous events. Particularly in our current global pandemic situation, few – if any – business contracts include an outbreak of disease in their Force Majeure Clause. If your contract does not include this clause or the specific force majeure does not apply, there may still be legal options for you to take. Most cases will see that the original contract can be renegotiated, delivery dates may be extended. Deliverables may be reduced and other terms may also be adjusted. Most business owners may be keen on negotiating changes as they want to keep production going as smoothly as possible.
However, always consult a business attorney to read your original contract and to negotiate on your behalf. Or, if you are planning to go into business, use a lawyer with years of experience in drafting, negotiating, and enforcing business contracts.