Meaning of force majeure
The Collins dictionary defines force majeure as follows:
Many commercial contracts have a force majeure clause or define a force majeure event. The purpose of a force majeure clause is to ensure that parties are able to communicate their inability to perform their obligations under a contract, due to circumstances beyond their control.
This is particularly important to ensure parties are not accused of contractual breaches, or agreements terminated, when parties are unable to uphold their end of the bargain.
When is it used?
It is not used in legal practice very often. However, when circumstances arise, such as the current Covid-19 crisis, lawyers will be looking at these clauses very closely and considering what impact they have on parties’ obligations under contracts.
Examples of the types of reasons people can be unable to comply with their obligations include:
There is no template or standard clause for a force majeure clause, so each one will differ. It is important to note the details of each clause to ascertain whether it is applicable in the specific circumstances.
Of course, there are grey areas. At the moment, people are arguing that the Covid-19 crisis is a natural disaster. I have heard more than one person describe it as a manmade disaster. That decision is one to be made by a judge in a court room somewhere at a time to be determined. What is clear, is that the current Covid-19 crisis is something that is outside the parties’ control. It is not something that could have been contemplated, nor planned for.
What is an example?
There is only one occasion in my 18-year legal career where I have been forced to use a force majeure clause (other than in the present case) and that arose during the Brisbane floods in 2010. I was working for a client, who was physically unable to do their job under their service agreements, because the items they needed to service were literally under water as a result of the floods. It was physically impossible (short of a wet suit, and deep diving gear!) to do what was required of them under the contract.
We issued notices under each of the service agreements to the affected clients and advised them that we were unable to provide the contracted services, due to a force majeure event. We advised that usual service would resume as soon as it was possible to do so. When the flooding subsided and it was deemed safe to return to usual service, a further notice was issued, advising of a return to business as usual.
Generally force majeure clauses do not allow for exclusions because of disruption to supply chain due to availability of stock or interruption to supply, other than if such disruption is causes by one of the itemised force majeure events.
Changes to ordinary business operations
The important points to note for operational effectiveness, are:
If these important steps are followed, the protection afforded by a force majeure clause will be of great value.
If your contracts do not contain force majeure clauses, now might be the time to review your contracts and consider updating or amending them.