Force majeure, a term originating in French, means “greater force”. Related to the act of God term, it implies an unforeseeable, external force beyond one’s control, like a hurricane or earthquake. Adopted into the legal terminology, the force majeure clause in contracts enables parties to suspend or vary the terms of performance, and removes their liability for unforeseeable and unavoidable catastrophes that interrupt the expected course of events and prevent the fulfillment of obligations under the contract.
Some recent incidents, for example the re-routed Ever Cozy vessel in Israel, brought to our attention questions of delay and performance. However rare, if these incidents do happen, they remind us of the real financial and reputational consequences parties to a contract face. The unpredictability of these events stresses the importance of awareness of the force majeure clause and its inclusion into the contract to protect the rights and obligations of the parties.
The force majeure clause generally covers natural disasters – hurricanes, earthquakes, tsunamis, etc. but, unlike acts of God, it also covers human actions, like acts of war or man-made diseases.
The concept of force majeure originated in French civil law and is an accepted standard in many jurisdictions that drive their legal systems from the Napoleonic Code, although the application of the concept can also be strictly limited. In common law jurisdictions, such as the United Kingdom, the United States, or Canada (except for the province of Quebec), force majeure clauses are acceptable but must be more explicit about the events triggering the clause.
In some jurisdictions, three “tests” determine if the force majeure clause can be used as defence – the event must be unforeseeable, external (to both parties) and unavoidable, although, given the increased awareness of cyber or nuclear threats or pandemics, for example, the question of foreseeability in legal sense is still up for debate. It can, therefore, be difficult to prove these conditions in international tribunals. However, other jurisdictions may apply these concepts differently.
Additionally, in an attempt to clarify the meaning of force majeure, the International Chamber of Commerce applied a standard of “impracticability”, which means that it would be unreasonably burdensome and expensive, if not impossible, to carry out the terms of the contract. It is worth mentioning that the International Chamber of Commerce does not include the term force majeure in its Incoterms® 2020.
In summary, although the force majeure clause may not always be completely clear and transparent, and may, by its nature, favour the “big guys” with more power and financial resources, its inclusion in the contract makes a lot of sense as it enables parties to better manage risk and protect themselves if something sudden and unthinkable happens.
Join CIFFA’s online virtual workshop on December 11, 2023 as we provide an overview of the application of the force majeure clause in contracts. Register here.