Force Majeure

Force Majeure refers to a clause in a contract that excuses the parties from performing their obligations under certain circumstances. The aim of force majeure is to provide legal protection to parties in a contract when they are unable to perform their obligations due to events beyond their control.

It provides a fair and equitable solution for parties in situations where unforeseen events prevent them from fulfilling their contractual obligations while helping reduce the risk of disputes and litigation and facilitating business continuity. These events or circumstances are often called acts of God or acts of nature and can include natural disasters, wars, strikes, and other unforeseeable events.

• Force majeure refers to uncontrollable events that make it impossible or impractical for a party to fulfill their contractual obligations.
• The aim of force majeure is to allocate risks between both parties when it is impossible to continue a contract while reducing disputes.
• The concept of the act of God may relieve a party of liability for damages resulting from the event, while force majeure may only suspend or delay the performance of the contractual obligation.

Force majeure is a legal concept that refers to events or circumstances beyond the parties' control of a contract that makes it impossible or impractical to fulfill their obligations under the agreement.

This concept has its roots in the Roman legal system, which recognized the principle of vis major or greater force. Under this principle, a party was excused from the performance of a contract if an extraordinary event, such as war or natural disaster, made it impossible to perform the contract.

The term force majeure is derived from French civil law, which first codified the concept in the 19th century. The French Civil Code defines force majeure as an unforeseeable, irresistible, and external event to the party seeking to rely on it. Many other legal systems around the world have adopted this definition.

The force majeure clause is a provision in a contract that excuses a party's performance of its obligations under the contract when certain events or circumstances occur that are beyond the party's control. The purpose of a force majeure clause is to allocate risk between the parties in situations where the performance of the contract becomes impossible or impracticable due to unforeseeable events.

The typical clause will identify specific events or circumstances that will trigger the clause, such as natural disasters, war, terrorism, strikes, or governmental actions.

Steps

The basic steps of how force majeure works are as follows:

• Identifying the triggering event: The party seeking to invoke force majeure identifies the event that triggered the provision. This event must be unforeseeable and beyond the control of the parties.
• Reviewing the contract: The parties review the contract to determine whether it includes a this clause and what events the clause covers. The clause may also specify the consequences of its application.
• Providing notice: The party seeking to invoke force majeure provides notice to the other party as soon as possible. The notice explains how the triggering event has made the performance of the contract impossible or impracticable and what actions are being taken to mitigate the event's impact.
• Mitigating damages: The party seeking to rely on this clause should take reasonable steps to mitigate the impact of the event and minimize damages.
• Negotiating a resolution: The parties to contact work together to negotiate a resolution to the situation. This may involve renegotiating the contract terms, delaying performance, or terminating the contract.
• Documenting the situation: The parties document the situation and any agreements reached in writing to avoid disputes in the future.

Let us look at a few examples to understand the concept better:

Example #1

A recent example of force majeure that has received widespread attention is the COVID-19 pandemic. Many businesses have been impacted by government-imposed lockdowns, travel restrictions, and other measures aimed at slowing the spread of the virus. As a result, many businesses have been unable to perform their contractual obligations, such as delivering goods or services, or have been forced to do so under drastically different circumstances.

For instance, in the travel industry, airlines, hotels, and other companies have invoked force majeure clauses to cancel or modify reservations in response to the pandemic. In some cases, customers have sought refunds or other compensation for canceled travel plans, while companies have argued that the pandemic and related government actions qualify as force majeure events that excuse them from their contractual obligations.

Example #2

Imagine a company in the United States that has made a contract with a supplier in China to purchase a large shipment of goods that they will deliver by sea. The contract includes a force majeure clause that excuses performance in the event of unforeseeable circumstances beyond the control of either party.

Now, suppose that shortly before the scheduled departure of the ship from China, a severe storm develops in the South China Sea, causing widespread damage and disrupting shipping lanes. As a result, the supplier is unable to load the goods onto the ship as planned, and the departure faces an indefinite delay.

In this situation, the force majeure clause in the contract may excuse the supplier from its obligation to deliver the goods on time. A severe storm is an unforeseeable event beyond the supplier's control that has made the performance of the contract impossible or impracticable. The clause may provide for a suspension of the contract until the circumstances change or for termination of the contract if the delay continues for a specified period of time.

Example #3

A significant rupture in the pipeline forced Sudan to impose a Force Majeure, as it got harder to receive supplies from South Sudan. This drastic measure is likely to ease Sudan's contractual obligations. The rupture has occurred in the conflict zone, thus raising challenges to access the pipeline and repair. Oil supplies were reportedly reduced to 1.2 barrels in March 2024, showing major shifts in Sudan's economy.

The differences between the two are as follows:

This has been a guide to Force Majeure and its meaning. Here, we explain its examples and differences between the Act of God along with its steps. You may also have a look at the following articles -

• Master Service Agreement
• Moratorium
• Offtake Agreement