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Jun 2, 2020
Services: Business Law

Force Majeure Clauses: What Are They & Why Are They Important?

Definition Of Force Majeure

A force majeure clause is a provision in an agreement that suspends a party’s duty to perform certain obligations under the agreement if such performance is prevented or hindered by reason of extreme circumstances or events that are outside of that party’s control. If the extreme event is a continuing event, the party’s obligation to perform is suspended for the duration of the force majeure event. 

Covered Events Under A Force Majeure Clause

The purpose of a force majeure clause is to excuse a party’s non-performance of its obligations for events that are unexpected and unavoidable, and that impact the ability of a party to do what they are required to do under the terms of the agreement. In order to be unexpected, a party cannot cause, or be responsible for, the event. The “unavoidable” requirement means that a party must still exercise due diligence to protect from unexpected situations, and must make best efforts to minimize the impact of any force majeure event.

Additionally, the force majeure event must have actual, practical, implications on the party – if, for instance, a natural disaster has occurred but does not affect the business of a party, it is not a force majeure event.

Force majeure clauses are generally intended to cover a combination of unforeseen and unexpected natural, commercial, and political events:

  • Natural force majeure events may include natural disasters (such as fire, earthquakes, lightning, cyclones, hurricanes, floods, tsunamis, tornados, and the like); public health emergencies, famine, plagues, or other natural calamities, acts of God, epidemics or pandemics, or communicable diseases
  • Commercial force majeure events may include strikes, lockouts, work stoppages, labour disputes, or other actions by workers, but will generally exclude such events arising due to the specific employment policies or practices of the party seeking to rely on the force majeure clause
  • Political force majeure events may include public disturbances (such as acts of war, invasion, acts of terrorists, blockades, embargos, riots, public disorders, violent demonstrations, insurrection, rebellion, civil commotion, sabotage, and the like), or a legal prohibition of a party to conduct their business which will generally exclude any event arising from a party’s failure to comply with any law or order from a government authority. 

 

Summary

While force majeure clauses are not always included in contracts, and, where they are included, are sometimes seen as standard “boiler-plate” language, it is important that parties entering into a contract consider what types of events, if any, should be included in the force majeure clause. This is especially relevant given the COVID-19 pandemic that forced the closure of numerous “non-essential” businesses. A properly worded force majeure clause would allow a party to rely on the pandemic if their business was impacted and they are not able to meet their obligations under a contract. 

If you need assistance with the drafting or review of a contract that meets the needs of your organization, please reach out to one of SV Law’s Business Law lawyers and a member of our team will be happy to help.

The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.