As many are now aware, force majeure refers to a provision in a contract that allows performance to be excused during times of extraordinary and unforeseeable events. Most contractual language will state that performance will be excused due to “acts of God” or other “acts beyond the parties control”. The phrase “force majeure” is French for “superior force” or “irresistible power.” Common examples to invoke the force majeure clause in a contract include natural disasters, labor strikes, governmental restrictions, and other such acts.
Given the current global pandemic, the need for force majeure clauses has come into focus. A force majeure clause, if included in a contract, can excuse a party from performance – or provide relief – where otherwise the party may be liable for a breach of contract. It is important for organizations and companies to be aware of the power within the force majeure clause, as well as to ensure that the language is written in a way to encompass potential events that arise due to world events like the pandemic.
Force majeure clauses are legally binding, so if the language is unclear, there is the potential for misinterpretation or lack of clarity. It’s critical to ensure that the language of any force majeure clause is clear, concise, and captures the exact circumstances under which a party may be released from their contract obligations.
Force Majeure and the Risk of Litigation
When contracts are not properly drafted to account for extraordinary circumstances, contracts are more likely to face legal disputes. This leaves organizations vulnerable to costly and lengthy legal disputes over the validity of the contract and its terms.
Additionally, organizations must consider the implications of entering into new contracts while force majeure events are ongoing. Again, the language used in any new contracts should reflect the intent of the parties and account for the risk of future events occurring due to circumstances outside of the parties’ control.
Force Majeure, the Law, and Practical Matters
It’s also worth noting that each governing law may have its own interpretations around force majeure, so it’s important to ensure the language of any clause is written to reflect the governing law.
At a practical level, the force majeure clause should be considered as any other contract term should be. Which is to say – the parties should think about what is made explicit in the contract itself, and what lies outside of its scope. The parties should also ensure the language is clear and captures the intent of the agreement if it is invoked. Organizations should take the time to understand the implications of the clause and review all contracts for future events.
The Bottom Line
Force majeure is a powerful legal tool, but must not be taken lightly. It is important for organizations to be aware of the implications of the clause in a contract, ensure the language is clear if it is invoked, and review existing and new contracts for extraordinary events.