What is “Force Majeure”?
Force Majeure provisions, which stem from the French term meaning “greater force” or “superior force” are incorporated into many types of commercial agreements. These clauses are generally put in place to relieve a party from having to perform its contractual obligations due to the occurrence of an unexpected, unforeseen, supervening, and sometimes supernatural event, that is beyond the control of either party to the contract. This type of an event is sometimes referred to as an “Act of God.”
Features and Effects of Force Majeure Clauses
In uncertain times such as these presented by the Covid-19 pandemic, many businesses and individuals are wondering whether there is any way to break or hit pause on their commercial contracts.
As Force Majeure provisions will vary from one agreement to the next, it is important that each provision be reviewed and evaluated separately (but also in the overall context of the agreement), in order to effectively determine whether the occurrence of an event can be claimed to have triggered the Force Majeure provision and substantiate a delay in, or an outright prevention of, the performance of a party’s contractual duties.
While Force Majeure provisions vary from agreement to agreement, they generally have some rudimentary traits in common. For example, the test for many Force Majeure clauses requires that the party raising and relying on Force Majeure demonstrate that:
- the occurrence of the event or circumstances are beyond the party’s control;
- the occurrence of the event or circumstances could not reasonably have been foreseen when the agreement was negotiated and entered into; and
- the consequences of the event or circumstances could not have been avoided, prevented or overcome by the party claiming Force Majeure.
If a party successfully demonstrates the above, provides timely notice to the other party of its intention to rely on the Force Majeure provision, and has otherwise fulfilled its contractual obligations, the Force Majeure clause may:
- excuse the party from its duty to perform the contractual obligations which are directly prevented by the event or circumstances, and
- relieve the party of its liability for breach of the agreement during the period that the event or circumstances prohibits performance of the contractual obligations.
ICC Updates its Model Force Majeure Clause
In March of 2020, and for the first time since 2003, the International Chamber of Commerce (ICC) presented us with a timely update to its model Force Majeure provision, which can either be adopted in its entirety by parties drafting an agreement or used as a starting point and further customized to address specific demands.
The ICC notes that the model Force Majeure clause balances legitimate expectations of performance with the reality that circumstances change. Occasionally, the change in circumstances renders performance of a contract so difficult that it’s the original agreement itself that should be altered.
As part of ICC’s update, a new short-form Force Majeure clause is introduced, which was likely created with small and medium businesses in mind, as it covers the essential Force Majeure issues in three concise paragraphs (in comparison to its long-form counterpart consisting of nine paragraphs).
Notably, the ICC model Force Majeure provision includes plague, epidemic, and compliance with any law or governmental order, as events which commonly qualify as Force Majeure events. The full text of ICC’s long-form and short-form Force Majeure clauses can be found here.