What Are Force Majeure Clauses?
Force majeure (“superior force”) clauses are provisions in a contract that may excuse parties from performing their contractual obligations when certain extraordinary and unforeseeable events occur that are beyond their control. These events may include natural disasters, war, or pandemics that make performing the obligations impossible or impracticable. For example, COVID-19 was a significant event that provoked force majeure clauses nationwide. Importantly, under Australian law, force majeure clauses are not implied by common law and must be expressly included in a contract to be enforceable.
Requirements
In order for a force majeure clause to be invoked, the event must typically be unforeseen and beyond a party’s reasonable control. While sometimes referred to as ‘Act of God’ clauses, force majeure clauses are broader and can include events beyond natural disasters. If an event is predicted, such as a natural disaster forecast to hit in a few days, the rules are a little stricter. To invoke a force majeure clause, a party must prove that they undertook all reasonable steps to mitigate the risk. If, despite these steps, performing the obligation was still impossible or impracticable, then the party may be entitled to rely on the force majeure clause, subject to the specific terms of the contract.
This only applies if the event is out of the ordinary, however. Companies are expected to account for seasonal or reasonably foreseeable events like known flooding seasons. If the event was reasonably foreseeable, and you did not take known precautions to work around the risk, then you typically cannot rely on it as a force majeure event.
Force majeure clauses almost always include strict notice obligations to provide evidence and prevent dispute. Affected parties must give formal notice of their intention to invoke the clause. This notice should include the nature of the event, how it affects performance, what measures were taken before and after the event occurred and an estimation of the delay time. Failing to provide proper notice can result in a loss of entitlement to rely on the force majeure clause, even if the underlying grounds for invoking it were otherwise valid.
The party invoking the clause also needs to satisfy the causation requirement: proof that the event directly caused the inability to perform. Mere increased cost or reduced profitability is generally insufficient to invoke a force majeure clause. The contract will define what constitutes a force majeure event and typically will exclude reasonably foreseeable events from the scope of force majeure relief.
What They Do
One common result of a successful force majeure claim is that the affected party receives an Extension of Time (EOT). This extends the deadline for completing the obligation, and typically the party is not liable for delay damages during that extension period.
In some cases, the contract may provide for a temporary suspension of obligations. Alternative arrangements to complete the obligation can also be enacted. For example, if a party invokes force majeure because they cannot attend a meeting due to a natural disaster in their area, they may be able to attend the meeting virtually instead. In this way, they are not relieved of their obligations, but the method by which they fulfill those obligations is modified.
In rare cases, a contract may provide for financial compensation to the affected party for costs incurred by the event. However, this is uncommon, as force majeure clauses typically excuse performance rather than provide compensation.
How They Are Different from Bereavement Clauses
Force majeure clauses typically cover extraordinary external events beyond a party’s control and generally do not address personal circumstances like the death or long-term illness of a family member. Instead, bereavement or compassionate leave clauses typically address those events in employment contexts, usually by granting paid leave.
Force majeure clauses exist to provide relief to contracting parties from their contractual obligations when extraordinary events beyond their control make performance impossible or impracticable. With proper evidence, timely notice, and satisfaction of all contractual requirements, force majeure relief may be available depending on the specific circumstances and contract terms. If you have any questions about force majeure clauses or need assistance with a potential force majeure situation, please do not hesitate to contact me. I am here to help.
DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.