Force majeure

Force majeure provisions are clauses that change the parties’ obligations and/or liabilities under a contract when circumstances beyond their control (a ‘force majeure event’) prevent them from fulfilling those obligations. The extent of these clauses will depend on the wording of each clause; force majeure clauses may, for example, refer to wars, riots, civil unrest, pandemics and epidemics, floods and fire.

Force majeure clauses are used to protect the parties from liability in the event that they fail to perform their contractual obligations due to events outside their control. 

Where there is no express force majeure clause and the contractual obligations become impossible to perform, limited remedies are available.

Force majeure clauses provide certainty to the parties, as they clearly define what is considered a force majeure event and what the consequences of such an event will be.

Parties have the freedom to determine how they would like to define a force majeure event. Express inclusion or exclusion of certain events can be useful in minimising uncertainty. 

Generally, parties tend to include a definitive list of events that would constitute a force majeure. This normally includes wars, riots, natural disasters or terrorist attacks. Some may also include a ‘catch all’ provision to extend the application of the clause to similar events that aren’t specified in the list.

Without a force majeure clause in place, the parties will have limited remedies. One of these remedies is the doctrine of frustration. 

Frustration applies when the parties are unable to fulfil their obligations due to an unexpected event that happened after the contract was made. The event must be beyond the parties’ control and have rendered the performance impossible, illegal or change the central purpose of the contract. These circumstances have been shown to be very difficult to prove. 

Frustration will not apply where:

• performance has only become inconvenient or more expensive
• the failure to perform is due to an event that is either parties’ fault
• the event should have been foreseen
• the event has already been covered by a force majeure clause in the contract

If established, the parties will be released from their future obligations under the contract. 

The party seeking to rely on the clause must show that:

• the event is beyond the control of that party
• the event has prevented or delayed the performance of the party’s contractual obligations
• all reasonable steps have been taken to avoid the event or mitigate its consequences

The party must also show that it has become ‘physically or legally impossible’ to perform its obligations. The fact that it has become less profitable or more difficult to carry out its obligations is insufficient. 

Where the force majeure clause involves wording such as ‘results from’ and ‘causes’ then the party may have to demonstrate that but for the force majeure event, it would have been ready and willing to perform its obligations.

Usually, force majeure clauses require the party relying on the force majeure clause to give notice to the other party within a specific timeframe. Such notice should set out the force majeure event, its impact on the party’s ability to perform its obligations and detailed information about the event (eg when the event occurred and the estimated duration of delay). The party relying on the force majeure clause is typically also required to regularly update the other party and inform them when the delay ends. 

Failure to comply with these conditions may prevent the party from relying on the clause or may allow the other party to bring a claim for damages.

This depends on the clause itself. 

Most commonly, the performance of obligations will be suspended until the force majeure event and its impacts cease to prevent performance under the contract. A clause may also be included which allows the parties to end the contract if the impact of the event continues for a specific period of time. 

For parties relying on the force majeure clause, you should consider taking these steps:

• carefully review the precise wording of the force majeure clause to determine how a claim may be framed
• collect evidence to demonstrate the impact the force majeure event had on your performance
• collect evidence that all reasonable steps have been taken to prevent or mitigate the consequences of the event 
• ensure the notice requirements and any time limits are complied with 
• consider alternative ways to perform the obligations since a wrongful claim could amount to a breach of contract

For parties receiving notices of force majeure, you should consider taking these steps:

• carefully review the precise wording of the force majeure clause to determine if the event falls within the scope of the force majeure clause 
• determine whether there is a causal link between the event and the non-performance
• contact the other party to ask for evidence on how the event has impacted performance and steps that have been taken to prevent or mitigate the consequences of the event
• request for regular updates from the other party on its effort to resume performance 
• ensure the notice requirements and any time limits are complied with 
• consider the implications of the force majeure claim on your other obligations owed to other parties
• if you’re satisfied, consider negotiating a written variation to the contract

Where it is unclear whether an event falls within the definitions or you need assistance with drafting, Ask a lawyer.