As a mergers and acquisitions lawyer can explain, force majeure is a contract provision that temporarily releases both parties from their obligations if an extraordinary event directly prevents one or both parties from performing. The French term “force majeure” means superior force. A non-performing party could use the clause as an excuse due to circumstances beyond their control, not because of any fault or negligence, so they’re not liable for harm caused to the other party.
The circumstances must be severe to excuse performance. It’s not enough that performance is difficult, unprofitable, or impractical. It must be more than an economic downturn or unforeseen low supplies of a needed product. The problem must rise to the level of an “act of God,” such as labor disputes, wars, floods, civil unrest, fires, or major storms. How bad things must be depends on the contract’s language, which should also spell out what happens if such an event occurs.
How Does A Force Majeure Clause Affect Contract Performance?
Depending on the clause’s language, if such an event occurs, performance obligations are suspended until the event and its impacts cease preventing that performance. The clause could include provisions allowing the parties to end the contract if the event’s impact continues for a given period.
What Must Be Shown To Establish The Valid Use Of A Force Majeure Clause?
As our friends at Focus Law LA can explain, the party seeking the clause’s protection must prove that:
- The event is beyond their control
- It delayed or prevented the performance of their contractual obligations
- All reasonable steps were taken to prevent the event or lessen its consequences
- It’s physically or legally impossible to perform its obligations.
Depending on the clause’s wording, the party using the defense must show that, but for the event, it would’ve been willing and able to perform its obligations.
What Should A Party Do If They Can’t Perform Their Obligations?
The clause usually requires the party relying on it to provide notice to the other party within a given timeframe. The notice should:
- Give detailed information about the event
- Describe how and why it’s impacting the party’s ability to perform
The party using the force majeure clause is usually required to regularly update the other party and tell them when the delay will end. Failing to live up to these conditions may prevent the party from using the clause’s protection or allow a damages claim by the other party.
What Are A Party’s Obligations If There’s An Extreme Event But No Force Majeure Clause?
If there’s no such clause, there are limited alternatives for the party unable to perform. One option may be the doctrine of frustration. It may apply if parties can’t fulfill their obligations because of an unexpected event after the contract was finalized.
The party using it as a defense must prove the event:
- Was beyond their control
- Rendered performance illegal or impossible, or
- Would change the contract’s central purpose
This defense is usually tough to prove. Frustration doesn’t apply when:
- Performance is inconvenient or more costly
- The performance failure is because of an event that is either party’s fault
- The event should’ve been foreseen
- The event is covered by a force majeure clause in the contract
If frustration is established, the parties are released from future contractual obligations.
If you have a force majeure clause in a contract and have questions about it or want one in a contract you’re negotiating, call your attorney for help.
