A Force Majeure clause is a provision that is commonly included in contracts to address the possibility of unforeseen events that may prevent the performance of contractual obligations.
These events are often referred to as "acts of God" or "natural disasters," and can include a wide range of events beyond the control of the parties involved in the contract. Since the pandemic hit in 2020, this clause has drawn special attention from all contract professionals and business people.
The purpose of the Force Majeure clause is to allocate risk between the parties and to determine what happens in the event that performance is not possible due to circumstances beyond their control.
In this article, we will discuss the key components of a Force Majeure clause and provide guidance on how to carefully analyze and negotiate it. The following are some of the key components that are typically included in a Force Majeure clause
The Force Majeure clause should define the events that will trigger the application of the clause. The definition should be specific and comprehensive enough to cover the types of events that may impact the performance of the contract. It is important to note that the list of events may vary depending on the nature of the contract and the industry in which the parties operate. For example, a construction contract may include events such as earthquakes, floods, or labor disputes, while a software license agreement may include events such as cyber-attacks, power outages, or government actions.
The Force Majeure clause should specify the notice requirements that must be followed in the event of a Force Majeure event. The notice requirements may include the timeframe within which notice must be given, the method of notice, and the information that must be provided in the notice. It is important for the parties to follow the notice requirements precisely to avoid any disputes about whether the notice was properly given.
The Force Majeure clause should specify whether the parties' obligations will be suspended or terminated in the event of a Force Majeure event and the duration of the suspension or termination. The clause may also specify whether the parties have the right to terminate the contract if the Force Majeure event continues for an extended period. The parties should carefully consider the duration of the suspension or termination of obligations, as this can have significant implications for the parties rights and responsibilities under the contract.
The Force Majeure clause may require the parties to take reasonable steps to mitigate the effects of a Force Majeure event, such as finding alternative sources of supply or alternative means of performance. The clause may also require the parties to work together to develop a plan for mitigating the effects of the Force Majeure event. Mitigation requirements can help to minimise the impact of the Force Majeure event on the parties' business operations.
The Force Majeure clause should clearly identify the obligations that will be excused in the event of a Force Majeure event. The clause may specify that all obligations will be excused or only certain obligations, depending on the nature of the contract and the parties' preferences. The parties should carefully consider the responsibilities that will be excused and ensure that they are consistent with their expectations and intentions.
The Force Majeure clause should specify the timeframe within which the parties' obligations must be performed once the Force Majeure event has ended. The timeframe may be extended to allow for the parties to recover from the effects of the Force Majeure event. It is important for the parties to agree on a reasonable timeframe for performance, as this can affect the parties' rights and obligations under the contract.
The Force Majeure clause should specify the governing law that will apply in the event of a dispute related to the clause. This can help to provide clarity and certainty to the parties in the event of a dispute.
This really depends on the type of agreement and the side on whose behalf you are analyzing and negotiating the contract. However, there are some broad direction to carefully analyze and negotiate a Force Majeure clause:
ContractKen is a contract management software that can help businesses in several ways when it comes to dealing with Force Majeure clauses.