Force Majeure clauses -a clause to avoid majeure hassle?
Today’s blog post is going to take a brief look at Force Majeure clauses and why they might be useful for your business contracts.
What are they?
As you might have guessed, ‘Force Majeure’ is a French term which broadly translates to ‘greater force’. Not satisfied with a load of old Latin terms [the infamous writ of fieri facias anyone…?], the English legal system also includes some French ones for good measure. Who said the law isn’t accessible to all …
Terminology aside, these Force Majeure (FM) clauses are typically used to stop a party being in breach of its obligations under a contract, where an outside event impacts performance. An FM clause tends to identify various types of events which would trigger the clause and those events are usually ones which are unforeseeable and/or outside of the parties’ control - for example storms, industrial actions, and so on.
Why are people talking about them?
The FM clause was thrust into the spotlight when the Covid-19 pandemic arrived because lots of businesses were unable to perform their obligations for various reasons, including government regulations prohibiting certain activities. I saw first hand the knock on effects and the contractual issues that can crop up because my wife runs a family and wedding photography business and the wedding industry was, sadly, hit particularly hard.
At my last firm I also spent a lot of time working with businesses affected by the pandemic and it was a shame to see that many contracts simply didn’t have a FM clause. And in many cases where there was one, it wasn’t drafted in a way that Covid-19 - or its effects - would trigger it (an interesting story/blog for another day perhaps).
Why are they useful?
FM clauses can be incredibly useful and here are some reasons why:
They can protect a business from liability when unexpected events prevent performance. Without a FM clause, a party who fails to live up to its end of the deal may well be in breach of contract.
They can create more certainty in situations which might otherwise lead to an expensive and time consuming dispute, possibly involving the court.
They can allocate risk in a fair and balanced way between the parties well in advance of the event occurring. A business entering into a transaction with a clear FM clause is much better placed to plan and manage future risk.
They avoid the need to rely on more difficult / narrow legal concepts such as frustration. They also allow a much greater degree of flexibility compared with relying on these common law concepts (See further below).
What happens without a FM clause?
Let’s take an example of a wedding photographer who is to attend on their client’s wedding day and take photographs of the event. The day before the wedding a severe storm occurs at the photographer’s home which prevents them from getting to the venue. Without a FM clause, the photographer would likely be in breach of contract and may have to pay damages to their clients (possibly including a return of any money paid).
The photographer may try to rely on the legal doctrine of frustration, which would excuse the breach if the court agreed that the contract was frustrated. However, it is a fairly narrow concept and the threshold to prove it is generally high; the contract on these facts may not be frustrated. Leaving the decision to the courts creates a lot of uncertainty and also inflexibility, because a frustrated contract will be terminated completely and that may not be the desired outcome.
Preparing a FM clause
Having read all of this, I expect you are overcome with excitement to check your current contract(s) to see how the FM clause holds up (if there is one!). If you decide that it’s time to update your contract to strengthen your position, here are some general pointers (which of course must be tailored to your specific situation):
Think about why you need an FM clause in the contract - what types of transactions are you entering into and which of your obligations are most likely to be affected by FM events.
Consider what types of FM events are most likely to affect your business / contract performance, as the clause may need to be tailored during the drafting process to include those events.
Review the potential consequences if you do not include a force majeure clause. What consequences do you wish to avoid and how you will your FM clause achieve that?
Consider whether the clause should apply unilaterally (i.e. only cover your non-performance) or mutually to both parties. There are benefits/risks to consider - for example a mutual clause could be more likely to be seen as reasonable/fair (particularly in the consumer field), and not lead to sour business relations.
Determine if you want any notice requirements before the FM clause triggers. Including a notice requirement is optional but it could be beneficial in some transactions.
Consider how wide or narrow your clause needs to be and which events you wish to specifically list. It is quite typical to include a list of types of FM events that would trigger the clause and perhaps a ‘catch-all’ provision at the end, but the list must be given careful consideration (as noted above).
I hope this has been useful and please do get in touch if you have any questions or wish to discuss FM clauses in more detail.