Force Majeure Clause: What Is It, And How Does It Work?
Force Majeure is a concept in the law of contracts. As per this clause, when there is an unusual and unforeseen circumstance, the parties to a given contract are free from contractual obligations. You can find this clause in many contracts. Generally, this clause comes into effect when an extreme set of circumstances occurs. The extremity of the circumstance is beyond the control of the parties to the contract.
In this article, you will learn about the force majeure clause and how it works for contracts. Here, we will discuss the major aspects of the clause and when it comes into effect. Apart from that, you will also learn about the major applications of the force majeure clause. Furthermore, we will give you an example of a situation where this clause applies. Finally, we will discuss some special considerations related to the clause.
What Is The Force Majeure Clause?
According to Investopedia,
“Force majeure is a clause that is included in contracts to remove liability for unforeseeable and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations. These clauses generally cover natural disasters, such as hurricanes, tornadoes, and earthquakes, as well as human actions, such as armed conflict and man-made diseases.”
You will generally find Force Majeure as a clause in contracts. This will basically remove the liability of unavoidable and unforeseen circumstances. However, these circumstances occur mostly in case of catastrophes. For example, situations like these include pandemics, disasters, etc. Such circumstances interrupt the course of events. Hence, the participants in the contracts fail to fulfill their obligations.
Such a clause generally covers the problems related to disasters and catastrophes that mainly occur due to humans. Whether a Force Majeure clause is applicable in a situation depends on three factors:
- The situation must be unforeseen.
- It is an external situation.
- It is impossible to resist the situation.
Due to an increased awareness of pandemics, man-made disasters, cyber threats, etc., there has been a rise in questions regarding what is foreseeable and what is not.
The term “pacta sunt servanda” is the opposite of “force majeure.” The former is a principle in international law that says that one must keep an agreement and must not wriggle out of it.
How Does The Force Majeure Clause Work?
As per the Corporate Finance Institute,
“Examples of events that might trigger a force majeure clause into effect include a declaration of war, a disease epidemic, or a hurricane, earthquake, or other natural disaster events that fall under the legal term, “act of God.” It is important to note, however, that the mere occurrence of such events is not sufficient to trigger a force majeure clause.”
Here, the occurrence of the unforeseeable event must directly affect one of the parties in the contract. As a result, the given party would thus be unable to fulfill their contractual obligations. Only in situations like these the force majeure clause within a contract comes into play.
Force Majeure is a French term that means “major force” or “greater force.” The greater force stands as per the concept of “An act of God” or a situation where the law cannot hold any party accountable for not meeting contractual obligations. However, in other cases, force majeure also applies to man-made disasters or problems arising due to armed conflicts.
Apart from that, depending on the jurisdiction, the definition of force majeure or its applications changes. However, in most cases, it depends upon all three factors: unforeseeability, externality, and unavoidability.
Force Majeure Clause: What Are Its Applications?
According to Cornell University,
“A non-performing party may use a force majeure clause as excuse for non-performance for circumstances beyond the party’s control and not due to any fault or negligence by the non-performing party. However, mere impracticality or unanticipated difficulty is not enough to excuse performance. Indeed, courts generally do not recognize economic downturn as a force majeure event.”
The concept of force majeure owes its origins in French Civil Law. This law was part of the Napoleonic Code. Later, the concept also became a part of common law, not just in France but also across the world. However, for the application of the force majeure clause, certain key elements must be present:
- The event that has occurred must be extraordinary or highly unusual in nature.
- It must have a material impact on the parties to the contract. Hence, those parties lose their ability to fulfill the obligations to the contract. Here, the parties trying to meet their contractual obligations are inadvisable, illegal, commercially impractical, or impossible in the first place.
- Neither party in the contract was able to anticipate the occurrence of the force majeure event. Furthermore, even if it was possible, the event was totally outside the control of all the parties in the contract.
- The parties who have the responsibility to meet contractual obligations have done all the could do to reduce the impact of the event. Here, the parties need to show that they have made reasonable attempts to overcome the difficulties that came with the force majeure event.
Force Majeure Clause: Special Considerations
The International Chamber of Commerce added the standard of “impracticability” to clarify the meaning of the term force majeure. Here, they meant that to carry out the terms of the contract would be unreasonably burdensome, impractical, and expensive, if not outright impossible. However, the body did not include the term “force majeure” among Incoterms.
Force majeure works in events where the event is external to both parties in the contract. Here, the event was unforeseen and unavoidable for both parties in the contract. However, in real situations, parties find it complicated to prove the conditions. Furthermore, in international tribunals, force majeure defenses seldom fail.
Wrapping Up
Hope this article was helpful for you in learning about the force majeure clause in general. You can see from this article that the application of force majeure in contracts only occurs in extreme situations. Furthermore, it is still difficult to defend force majeure when it comes to contracts.
What do you think about the force majeure clause? Consider sharing your ideas and opinions with us in the comments section below.
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soumava goswami
A passionate writer and an avid reader, Soumava is academically inclined and loves writing on topics requiring deep research. Having years of content writing experience, Soumava also loves creating blogs in other domains, including digital marketing, business, technology, travel, and sports.
