What Is A Force Majeure Event?
For decades, the force majeure clause listed potential catastrophes that could impact the validity of an agreement at the end of a commercial contract. However, in 2020, force majeure became a significant issue as COVID-19 and its resulting waves of illness, closures, and supply chain disruptions upended the normal course of business. Faced with these daunting circumstances, many businesses sued each other using force majeure clauses and other contract terms. The resulting flood of legal arguments has prompted courts to consider anew what is a force majeure event.
Force Majeure Events
According to the World Bank Group, force majeure is an unforeseeable event. Force majeure clauses in a contract can relieve a party of certain obligations if events are beyond his or her control and make it challenging for them to fulfill the terms of the contract. The event that causes a breach of contract is called a force majeure. These events are often natural disasters like hurricanes, fires, earthquakes, or floods. Force majeure events can also be large-scale or catastrophic human-engineered events, including terrorism, war, riots, or other major global conflicts. Events in this category may also include government orders, strikes, trade embargoes, and work stoppages.
When unforeseen events make it impossible for a business to fulfill its contract, a force majeure clause allows the party to be excused from those responsibilities. Even in the best of times, companies may wish to consider including a force majeure clause in contracts, as such clauses can protect both parties from unpredictable events. However, the contract will need to specify the events covered by the clause. What is a force majeure event? According to the American Bar Association, these clauses must have four components. These clauses must:
- Define a force majeure event
- Specify that the breach can be excused
- Make a connection between the two previous components
- Outline what will happen when performance is excused
Are Foreseeable Problems Considered Force Majeure Events?
If the event was foreseeable but is not specified in the contract, then a breach of the agreement is not excused. However, if the event was not foreseeable, the party may still be covered under the contract even if it is not outlined in the terms. Courts have generally held the COVID-19 pandemic as an unforeseeable event.
However, some contracts may not be able to use the force majeure event clause. In some instances, there are some provisions for actions by the government, including quarantines and bans. When local, state, and federal governments banned or limited public gatherings for the pandemic, the force majeure clause was enacted in some cases but not explicitly tied to the pandemic. Given the complexity of the language regarding unforeseen events, there may be litigation to determine whether force majeure clauses are valid based on the pandemic and its myriad impacts and under what circumstances.
Why Are Force Majeure Events Not Seen as Acts of God?
A contract may refer to an act of God, which is a natural event that a business cannot avoid no matter how much planning or prevention its owners and staff undertake. Typically, an act of God is considered a natural disaster, such as a hurricane, tornado, or earthquake. While the terms act of God and force majeure are often used interchangeably, many contract clauses define an act of God as a separate consideration.
In many situations, acts of God are defined within a large category of unavoidable natural events. At the same time, a force majeure clause may encompass natural events and those resulting from human decision-making outside the business’s control. If you have questions about force majeure clauses and how they differ from other clauses that excuse one or both parties from contractual obligations under predefined circumstances, a knowledgeable contract attorney at Amini & Conant may be able to help.
What Is Not Covered by Force Majeure Clauses?
A force majeure clause may come into play in many unpredictable events, but these clauses will not cover certain occurrences. These include any events that a party could reasonably foresee.
Any event that could have reasonably been foreseen by the parties involved in a contract likely will not be considered a force majeure situation. If it rains on the day of a concert, that may be unfortunate, and it is certainly outside either party’s control. Still, rain on an inconvenient day is a predictable event, and the show can often be rescheduled because of the inclement weather.
Statements of Circumstance
A contract can state that the agreement will not be voided, even if a particular event occurs. In this case, force majeure is irrelevant.
A party could not use force majeure to excuse a failure to fulfill a contract if the party’s actions led to the loss. If someone damages property required to satisfy parts of the agreement, then force majeure typically cannot be invoked as an excuse for not fulfilling the contract.
>Negligence or Malfeasance
The principle of force majeure will not excuse parties from their contractual duties. For example, if a contractually important piece of property burns down and one of the parties does not take reasonable steps to prevent the fire, that party most likely will not be able to use the force majeure clause.
Using the Force Majeure Event Clause
Force majeure clauses are a frequent component of contracts because they can help parties manage risk and protect themselves from the events of an uncertain future. If a business cannot fulfill its obligations under an agreement, it is that party’s responsibility to inform the other about the situation immediately. Sometimes, companies can remedy the situation by suggesting a new time frame for fulfilling the contract or offering an alternative solution. Some alternative arrangements may include:
- Renegotiating or terminating the contract
- Pausing or calculating performance goals
- Offering complete relief of any legal liability
Inevitably, situations will sometimes arise outside of a party’s control that can cause a need to abandon contractual obligations. Being transparent and cooperative and seeking solutions that minimize damages can help build goodwill even when the business cannot fulfill its part of the contract as expected.