Contract Clauses: Force majeure

Contract Clauses: Force majeure

Business Sale, Commercial Law

Force majeure is an expression derived from French law. Generally, depending upon the drafting, it will operate to limit the obligations of the parties while they are prevented from performance by a factor that is beyond their control.

The operation of force majeure can be distinguished from frustration in that force majeure is a contractual construct and typically operates to suspend performance, whereas frustration operates where the performance of the contract is impossible or radically different and termination results.

The inclusion of a force majeure clause is standard practice in particular contract types. There is a significant body of case law on the operational force majeure clauses, indicating that force majeure clauses are often characterised by poor drafting.

A risk allocation mechanism

A force majeure clause is a risk allocation mechanism used to limit the liability of a party for events which delay, restrict, or hinder the performance of the contract – where such events are beyond the control of the parties. The triggers of a force majeure event often include acts of God such as fire, storms, earthquakes, and floods, as well as civil unrest, strikes, riots, and acts of war or terrorism.

Where a force majeure clause is missing

Where a contract does not include a force majeure clause, a party prevented from performance would be required to rely on the application of the doctrine of frustration. The doctrine of frustration is limited to events beyond the control of either party and does not apply to all situations or where performance is merely more onerous but is still possible.

Drafting considerations

A force majeure clause may operate to displace rights that would otherwise be available to parties under the doctrine of frustration. This is because the ways in which risk are to be allocated have been agreed by the parties in the formation of the contract, and the courts will give effect to the parties’ wishes as expressed.

Consequently, it is important that force majeure clauses are carefully drafted to reflect the intentions of the parties. Oftentimes, force majeure clauses are included as boilerplate clauses leading to subsequent issues where risks materialise.

One of the key components of a force majeure clause is the triggers i.e. the events that give rise to the operation of the clause. Where the list of triggers or factors giving rise to the operation of the clause is too specific, it may be difficult for the parties to rely on the operation of the clause for an event which is related but not specified within the clause.