A force majeure clause (FMC) varies a business’ obligations and liabilities under a contract where there has been an extraordinary event out of that business’ control.
It may allow a business to not perform – or delay performance of – certain obligations or allow a right to terminate the contract.
The availability and effect of an FMC entirely depends on the wording. This short blog gives you some tools to understand any such clause and how it may be used, including some common wording to look out for.
Top tips to reading and understanding a force majeure clause (FMC)
- Look for a specific FMC. If no FMC is present, you cannot rely on or imply such a clause (in English law).
- Review the events that trigger the relevant right: Force Majeure Events means any circumstances not within a party’s reasonable control including acts of God, fires, earthquakes, wars, invasions, embargoes.
- Understanding the FMC trigger is crucial. The contract may:
a. limit triggers to those specified in the clause only: … acts of God, fires, earthquakes, wars, invasions, embargoes.
b. list certain triggers by way of example but include other triggers that are similar to those listed: … fires, earthquakes or other similar natural disasters…
c. allow very wide triggers: … circumstance not within a party's reasonable control … - Consider if the FMC is available to you. FMCs may be available to one or all parties to the contract.
- Look for the connection between the trigger and a party’s inability to perform an obligation: if a party is prevented, hindered or delayed in performing its obligations under this agreement by a force majeure event.
- Care should be taken as some FMCs are limited to circumstances where a party is prevented (and not, for example delayed).
- 6. Understand the FMC’s effect on the contractual obligations: the affected party shall not be liable nor deemed in default for any delay or failure ….
- Consider if the FMC imposes notice and timing requirements: as soon as practicable and within 10 days of the force majeure event, the affected party shall notify the other party in writing.
- Consider if the FMC imposes an obligation to mitigate or to re-start performance: the affected party will use all reasonable endeavours to mitigate the effect of the force majeure event and resume performance as soon as the force majeure event ceases.
- Consider if the FMC gives the other party the right to terminate: if the force majeure event prevents or delays the affected party’s performance of this contract for 30 days, the other party may terminate the agreement by giving two weeks’ written notice.
- We recommend you keep a detailed record of:
a. the event that impacted your ability to perform the contract;
b. why that event meant that your performance was impossible (or hindered or delayed);
c. the steps you took to mitigate or find alternative solutions; and
d. when and how you served notice of the force majeure event on the other side. - An increase in the cost of performing a contract is rarely sufficient to invoke a FMC. Please see our separate blog that helps businesses identify and understand the effect of price variation terms in their contract, and tips to hold healthy negotiations on the sensitive issue of price.
How can we help
We are specialists in advising businesses the availability and exercise of FMCs. We can also take you through your rights available under the contract and assist you in drafting the most beneficial terms in your business environment. Should you need detailed or tailored advice, please contact Rob Stewart in our Commercial Dispute Resolution team.
Disclaimer: Anything posted in this blog is for general information only and is not intended to provide legal advice on any general or specific matter.