Force majeure clauses typically excuse a party to a contract from performance – or allow for a delay in performance – if such party is prevented from performing due to an Act of God, or some other catastrophic event typically listed in the clause. Such events often include natural disasters such as “wind, storm, flood, fire and earthquake” as well as man-made events such as “closing of the public highways” and “terrorist acts or threats” (this last one, sadly, became de rigueur following the attacks on September 11, 2001). A catch-all phrase – typically, “and other events beyond the reasonable control of the affected party” – generally follows.
The arrival of Hurricane Sandy a few weeks ago, and it’s devastating aftermath, remind us not only of the importance of having a force majeure clause in contracts, but of truly understanding the meaning and the nuances of such clauses.
Here are a few things to think about when drafting your force majeure clause, as well as when a force majeure event strikes:
- It’s important to understand whether the force majeure clause allows the affected party to excuse performance, or merely delay it, as noted above. If the latter – when must performance be rendered? As soon as the event concludes? You should consider adding language giving yourself a little extra time to get up and running.
- Remember that there has to be a causal link between the force majeure event and your inability to perform. If you are about to invoke the force majeure clause, be certain that such a causal link exists. In particular, if the inability to perform is a result of your negligence, in whole or part, then the force majeure clause may not apply.
- Similarly, many force majeure clauses contain a requirement that the event be “not be reasonably foreseeable” in order to qualify as a force majeure event, which adds an element of subjectivity that is often problematic. If you live on the Gulf Coast, for example, a hurricane strike is certainly foreseeable, but should that disqualify it from being a force majeure event?
- Many force majeure clauses require the affected party to provide the other party with notice of the occurrence of a force majeure event within a certain amount of time – which will probably not be the first thing on your mind at that moment. Be sure to draft this provision so as to give yourself enough time to react, if you agree to such a notice requirement.
- Similarly, many force majeure clauses allow the other party to terminate if the force majeure event persists beyond some stated amount of time. If you are dealing with such a requirement, is the time period long enough?
- Don’t rely on the “catch-all” phrase noted above, if you can avoid it. If you live in an area prone to certain kinds of force majeure risks, or if your industry faces particular force majeure risks, you should list those risks very specifically in your force majeure clause.
Force majeure clauses tend to be overlooked when drafting contracts, but careful drafting can help you avoid problems before they arise – so that you can focus on getting your business back in operation as quickly as possible