What is a Force Majeure Clause and What Does it Do?

force majeure clause

In the past few months, many have been introduced to a whole new vocabulary – words like “coronavirus” and “social distancing” have suddenly become a part of our everyday vocabulary. If you are a business owner, you may have also been hearing a lot about “force majeure” clauses and their application to the COVID-19 pandemic. 

Force Majeure Clause Defined

In its simplest terms, a force majeure clause releases the parties to the contract from their obligations when their ability to perform those obligations is prevented by something beyond their control. Force majeure clauses are often invoked as a result of extreme weather events like hurricanes, floods or tornadoes, or political events such as war or riots.

The concept behind a force majeure clause is that the parties should not be penalized when an outside force that the parties could not control or prepare for interfered with their performance. 

Elements to Be Proven for a Force Majeure Clause to Apply

In most contracts, force majeure clauses are not given much though because, by definition, they are rarely, if ever encountered, and the circumstances under which a force majeure clause can be invoked are so limited. But there are some general criteria that must be satisfied for a force majeure clause to apply.

First, the event must be beyond the reasonable control of the party that failed to perform. Second, the party’s failure to perform under the contract must have been directly prevented or impeded by the event - in other words, the fact that the event occurred and was beyond the control of the party who did not perform is not enough – the party has to be able to show that the event caused the failure of performance.

Next, the party who did not perform must show that they took all reasonable steps to try to avoid or mitigate the event or its consequences. Finally, the party that failed to perform may be required to give notice to the other party of their inability to perform as well.

Wording of the Contract is of Paramount Importance

Every contract is different, and as always, the specific wording of the contract may make it more or less difficult for the party to invoke the force majeure clause. Usually, the more specific the contract is about what constitutes force majeure and when it can be invoked, the more limited a party’s ability to invoke the clause to escape penalty will be.

Some contracts may set out specific circumstances when force majeure can be invoked or under which performance or liability may be forgiven; others may impose different terms rather than releasing a party from its obligations entirely. Many contracts specify that force majeure can only be triggered if performance is made entirely impossible, while others only require performance to be delayed or obstructed. Still others may include “catch-all” phrases that encompass any other circumstance that prevents a party from performing if it is beyond the party’s control. 

Some contracts have specific force majeure provisions that include epidemics or pandemics, and these clauses may apply, for example, if a party has been prevented from conducting its business due to shut-downs imposed by government in response the current COVID-19 pandemic.

In addition to the force majeure clause, there may be other clauses within the contract that have an effect on the ability to invoke a force majeure clause and the consequences for failure to perform. In short, how the contract provisions are worded and how they relate to one another will have a major impact on a party’s ability to rely on it in a particular circumstance.

What Happens Next?

Once again, the wording of the contract will likely dictate what happens if force majeure is invoked. Often, the remedy is simply an extension of time for the party to perform, or the contract can be suspended until the event is ended. In other circumstances, invoking force majeure may allow the parties to cancel the contract entirely without penalty.
If you think you may have a valid force majeure claim under an existing contract, or if you would like to review your contract to determine whether your force majeure clauses need to be revised, you can use our site to find a lawyer who can help.

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Posted - 06/19/2020