What Is a Force Majeure Clause and When It Applies

pdolhii
6 days ago
5 min read

We live in a very fast-changing world, and changes can be both good and bad. It is logical that business should be protected from unforeseen circumstances. That's why there is a force majeure clause, which is a condition that releases a party from liability for failure to fulfill a contract if something goes wrong and these circumstances are beyond the parties' control. Thus, a force majeure clause in an agreement applies when it is impossible or too difficult to fulfill the agreement.

Force Majeure Meaning and Definition

What does “force majeure” mean in law?

Force majeure is the meaning of events and circumstances of force majeure that release a party from liability for failure to fulfill a contract. This includes natural disasters, epidemics, technical accidents, war, strikes, government bans, or other events that the parties could neither foresee nor control. Businesses should remember that it is not only the fact of the event that is important, but also its direct impact, which makes it impossible to fulfill the agreements.

Force majeure vs “Act of God”

“Act of God” most often refers only to natural phenomena that cannot be predicted, such as earthquakes, floods, heavy snowfall, floods, tsunamis, volcanic eruptions, etc., i.e., where there is no human intervention. Force majeure definition is broader and includes the human factor of influence. Therefore, an “Act of God” can be part of force majeure, but they are not identical concepts!

Force Majeure Clauses in Contracts

Key elements of a force majeure clause

Force majeure clauses in a contract are quite universal. So, it is mandatory to have a list of events that will trigger the condition. Secondly, it is the procedure for determining these events, for example, if they are generally known or if an official body issues a document in confirmation. The third is how to notify your partner. And the last is, of course, the consequences. The contract may be suspended for a certain period of time, the terms may be extended or even exempted from performance. In addition, you can stipulate the conditions for resuming cooperation when force majeure ends.

Common events covered (natural disasters, war, strikes, pandemics)

The simple answer is what does force majeure mean in real life? These are unpredictable events that could not be prevented and over which the parties have no influence. These are all natural disasters (earthquakes, floods, fires, hurricanes, etc.), as well as military actions, armed conflicts, terrorist attacks, border blockades, strikes, riots, blockades, embargoes - that is, any event that substantially impedes the performance of contractual obligations.

When Does Force Majeure Apply?

Legal conditions for invoking force majeure

In order for the force majeure clause to work, several conditions must be met. The main thing is that the unforeseen event has not only occurred, but it directly prevents the performance of the contract or significantly complicates the performance. In other words, it is necessary to confirm this connection and the result and that a specific result is created. The parties also often check whether measures have been taken to avoid or mitigate the negative consequences. Only if these factors are present can the force majeure clause be applied.

Notice requirements and documentation

As we have seen, the force majeure meaning in legal practice is a bit more complicated. Anyone who has suffered the consequences of force majeure has a certain period of time to notify. Often, there are requirements for such notification, such as a written form, a detailed description of what happened and when, explanations of the impact and consequences, etc.

A supporting document from a state competent authority (e.g., a chamber of commerce) or other evidence is often required. It is important to follow the procedure clearly so that everything works in your favor!

Drafting and Negotiating Force Majeure Clauses

Tailoring the clause to industry risks

To correctly determine what is force majeure in your specific case, you should take into account the specifics of your business. A force majeure clause example in transportation should take into account natural features, customs restrictions, specific regulations, etc. In construction, force majeure would refer to a ban on work, difficulties with the supply of materials, etc. In IT, it could be the failure of critical components or cyberattacks. Therefore, risks must be described accurately and depending on the field. Icon.Partners has extensive experience in contractual work and protecting clients in such situations.

Limiting liability and remedies

The meaning of force majeure in law is not comprehensive. The specifics of the interaction must be taken into account here. For example, the provision may contain limitations of liability, as well as available options for protection. Most often, this is the exemption of the affected business from penalties or the possible extension or postponement of deadlines. A time limit may also be agreed upon, i.e., if the negative event lasts, for example, more than a month, the agreement may be terminated without penalties. This is primarily about balance and flexibility for each case!

Force Majeure Clause Examples

Sample force majeure wording

At Icon.Partners, we always say that there is no such thing as a typical case in law. First, we assume that liability will not be applied for failure to fulfill obligations that arose beyond control, including, but not limited to, natural disasters, wars, strikes, blockades, epidemics, decisions of state authorities, etc. The affected party must take measures to avoid and minimize damage and notify the other party within a specified period. We adapt this provision for each client and the specifics of their business.

Lessons from recent case law

A very recent case. We have just completed the company incorporation for a client, and it was one of the first deals involving IT services. All that remained was to wait for the work to be completed and pay for it. Immediately after the contract was signed, the developer was attacked and work was halted. Fortunately, the partner duly notified our client, provided evidence of the attack, and we agreed to postpone the deadline for fulfilling obligations and payment. No penalties were applied, because no one is immune. So, in business, it is important to respond correctly to challenges and respect your partners!

FAQ on Force Majeure