Force majeure
Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God, prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party's non-performance entirely, but only suspend it for the duration of the force majeure.
Force majeure is generally intended to include occurrences beyond the reasonable control of a party, and therefore would not cover:
- Any result of the negligence or malfeasance of a party, which has a materially adverse effect on the ability of such party to perform its obligations.
- Any result of the usual and natural consequences of external forces.
- *To illuminate this distinction, take the example of an outdoor public event abruptly called off.
- **If the cause for cancellation is ordinary predictable rain, this is most probably not force majeure.
- **If the cause is a flash flood that damages the venue or makes the event hazardous to attend, then this almost certainly is force majeure, other than where the venue was on a known flood plain or the area of the venue was known to be subject to torrential rain.
- **Some causes might be arguable borderline cases ; these must be assessed in light of the circumstances.
- Any circumstances that are specifically contemplated in the contract—for example, if the contract for the outdoor event specifically permits or requires cancellation in the event of rain.
Force majeure in any given situation is controlled by the law governing the contract, rather than general concepts of force majeure. The law of the contract often specified by a choice of law clause in the agreement, and if not is decided by a statute or principles of general law which apply to the contract. The first step to assess whether - and how - force majeure applies to any particular contract is to ascertain the law of the country which governs the contract.
Purpose
Time-critical and other sensitive contracts may be drafted to limit the shield of this clause where a party does not take reasonable steps to prevent or limit the effects of the outside interference, either when they become likely or when they actually occur. A force majeure may work to excuse all or part of the obligations of one or both parties. For example, a strike might prevent timely delivery of goods, but not timely payment for the portion delivered.A force majeure may also be the overpowering force itself, which prevents the fulfillment of a contract. In that instance, it is actually the impossibility or impracticability defenses.
In the military, force majeure has a slightly different meaning. It refers to an event, either external or internal, that happens to a vessel or aircraft that allows it to enter normally restricted areas without penalty. An example would be the Hainan Island incident where a U.S. Navy aircraft landed at a Chinese military airbase after a collision with a Chinese fighter in April 2001. Under the principle of force majeure, the aircraft must be allowed to land without interference.
The importance of the force majeure clause in a contract, particularly one of any length in time, cannot be overstated as it relieves a party from an obligation under the contract. What is permitted to be a force majeure event or circumstance can be the source of much controversy in the negotiation of a contract and a party should generally resist any attempt by the other party to include something that should, fundamentally, be at the risk of that other party. For example, in a coal-supply agreement, the mining company may seek to have "geological risk" included as a force majeure event; however, the mining company should be doing extensive exploration and analysis of its geological reserves and should not even be negotiating a coal-supply agreement if it cannot take the risk that there may be a geological limit to its coal supply from time to time. The outcome of that negotiation, of course, depends on the relative bargaining power of the parties and there will be cases where force majeure clauses can be used by a party effectively to escape liability for bad performance.
Because of the different interpretations of force majeure across legal systems, it is common for contracts to include specific definitions of force majeure, particularly at the international level. Some systems limit force majeure to an Act of God but exclude human or technical failures. The advisory point is in drafting of contract make distinction between act of God and other shape of force majeure.
As a consequence, force majeure in areas prone to natural disaster requires a definition of the magnitude of the event for which force majeure could be considered as such in a contract. As an example, in a highly seismic area a technical definition of the amplitude of motion at the site could be established on the contract, based for example on probability of occurrence studies. This parameter or parameters can later be monitored at the construction site. An earthquake could be a small shaking or damaging event. The occurrence of an earthquake does not imply the occurrence of damage or disruption. For small and moderate events it is reasonable to establish requirements for the contract processes; for large events it is not always feasible or economical to do so. Concepts such as 'damaging earthquake' in force majeure clauses do not help to clarify disruption, especially in areas where there are no other reference structures or most structures are not seismically safe.
Common law
English common law does not automatically apply force majeure principles to contracts. Parties to English law contracts who wish to have force majeure relief must spell out what constitutes force majeure in the contract itself. Failure to do so means that a supervening event which prevents performance of the contract will not be caught as a force majeure event, so as to provide relief from performance – because it has not been named as a qualifying event in the contract.Common law recognizes the concept of frustration of purpose, a narrower concept that applies when the actual performance of the contract is radically different from what the parties intended. When force majeure has not been provided for in the contract, and a supervening event prevents performance, it will be a breach of contract. The law of frustration will be the sole remaining course available to the party in default to end the contract. If the failure to perform the contract deprives the innocent party of substantially the whole benefit of the contract it will be a repudiatory breach, entitling the innocent party to terminate the contract and claim damages for that repudiatory breach.
As interpreted by English courts, the phrase force majeure has a more extensive meaning than "act of God" or vis major. Judges have agreed that strikes and breakdowns of machinery, which though normally not included in vis major, are included in force majeure.
The term cannot, however, be extended to cover delays caused by bad weather, football matches, or a funeral: the English case of Matsoukis v. Priestman & Co held that "these are the usual incidents interrupting work, and the defendants, in making their contract, no doubt took them into account.... The words 'force majeure' are not words which we generally find in an English contract. They are taken from the Code Napoleon, and they were inserted by this Romanian gentleman or by his advisers, who were no doubt familiar with their use on the Continent." In Hackney Borough Council v. Dore it was held that "The expression means some physical or material restraint and does not include a reasonable fear or apprehension of such a restraint".
In re Dharnrajmal Gobindram v. Shamji Kalidas , it was held that "An analysis of ruling on the subject shows that reference to the expression is made where the intention is to save the defaulting party from the consequences of anything over which he had no control."
Even if a force majeure clause covers the relevant supervening event, the party unable to perform will not have the benefit of the clause where performance merely become more difficult, more expensive, and/or less profitable.
For example, parties in the United States have used the COVID-19 pandemic as a force majeure in an attempt to escape contractual liability by applying the elements of an unforeseeable event, outside of the parties’ control, that renders performance impossible or impractical.
Civil law
France
For a defendant to invoke force majeure in French law, the event proposed as force majeure must pass three tests:; 1. Externality : The defendant must have nothing to do with the event's happening.
; 2. Unpredictability : If the event could be foreseen, the defendant is obligated to have prepared for it. Being unprepared for a foreseeable event leaves the defendant culpable. This standard is very strictly applied:
- CE 9 April 1962, "Chais d’Armagnac": The Council of State adjudged that, since a flood had occurred 69 years before the one that caused the damage at issue, the latter flood was predictable.
- Administrative Court of Grenoble, 19 June 1974, "Dame Bosvy": An avalanche was judged to be predictable since another had occurred around 50 years before.
Other events that are candidates for force majeure in French law are hurricanes and earthquakes. Force majeure is a defense against liability and is applicable throughout French law. Force majeure and cas fortuit are distinct notions in French Law.
Germany
On the other hand, German law does differentiate between vis major and casus fortuitus but, like English, tends to lump them together under höhere Gewalt which seems conceptually synonymous with the common law interpretation of force majeure, comprehending both natural disasters and events such as strikes, civil unrest, and war. However, even in the event of force majeure, liability persists in the face of default by a debtor.Argentina
In Argentina, force majeure is defined by the Civil Code of Argentina in Article 512, and regulated in Article 513. According to these articles, force majeure is defined by the following characteristics:- an event that could not have been foreseen or if it could, an event that could not be resisted. From these, it can be said that some acts of nature can be predicted, but if their consequences cannot be resisted it can be considered force majeure.
- externality: the victim was not related directly or indirectly to the causes of the event, e.g., if the act was a fire, or a strike
- unpredictability: the event must had been originated after the cause of the obligation.
- irresistibility: the victim cannot by any means overcome the effects.