What is force majeure and why have a force majeure clause?
An event of force majeure is an occurrence that happens outside of the control of a party. The purpose of a force majeure clause is often to provide relief to one party if a force majeure event occurs and affects their performance of their contractual obligations. Why? As otherwise, that party would have to rely on the common law doctrine of frustration that only applies in limited circumstances where performance is impossible which is a high threshold to meet.
The concept of force majeure derives from the French Civil Code. Under French law, it applies regardless of whether it is expressly stated in the contract. That is not the case under English law where it does not have a settled meaning and therefore it is a matter of contractual language.
In whose interest is it to include a force majeure clause?
Typically, it is in the interest of the supplier (as the performing party) to include a force majeure clause. As it is prudent to define what would constitute a force majeure event (given that there is no settled meaning), a supplier may want to draft a fairly broad list of events that would constitute a force majeure event.
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Customer considerations |
- Consider expressly stating that labour disputes and failure of subcontractors constitute force majeure. What else may disrupt contractual performance? In event’s industries, travel disruption can be particularly difficult to navigate.
- Is it reasonable to allow the non-affected party (e.g. customer) a right of termination if the force majeure event continues beyond a certain amount of time?
- What steps can be taken to mitigate such force majeure event?
- Ensure effect of force majeure is drafted broadly (i.e. not just preventing performance (a high bar), but hindering or delaying it)
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- Consider what should be expressly excluded from the force majeure definition (e.g. Covid-19). What should a prudent supplier be mitigating against? Anything foreseeable?
- Should the supplier be prevented from invoking the force majeure clause if they have not properly implemented their business continuity and disaster recovery plan?
- What is the exit strategy if the force majeure event continues beyond a certain period of time?
- Is the service so critical that an express step in right either directly by customer (or another third-party supplier) should be included whilst the event of force majeure continues?
- If payments are not tied to specific delivery dates of services and/or deliverables consider expressly stating that payment obligations shall also be suspended.
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How do you invoke a force majeure clause?
For many years, it has been a clause that has been overlooked from a drafting perspective. That all changed in 2020 with the Covid-19 pandemic and subsequent sanctions regulations following the Russian invasion of Ukraine in 2022. Cue many lawyers nervously reviewing their agreements as to what was agreed in respect of force majeure.
The burden of proof sits with the party seeking to rely on the force majeure clause and often where one party suffers a force majeure event, it will likely have an obligation to notify the non-affected party and take reasonable steps to mitigate such force majeure event. Although, the exact requirements will always depend on what the clause prescribes. Note: we have had recent confirmation that such reasonable steps does not require an affected party to accept non-contractual performance, such as accepting payment in a different currency to what was stated in the contract (as was the case in RTI Ltd v MUR Shipping BV [2024] UKSC 18 (15 May 2024)). As mentioned in the introduction, the purpose of a force majeure clause is to suspend the obligations of the affected party for the duration of the event.
Final thoughts…
If you are a customer, you may decide to omit a force majeure clause altogether from the agreement and wait to see whether the supplier seeks to include one. If you are a supplier, alongside your force majeure clause you may also want to include a customer dependencies/relief clause in the event you are unable to perform your obligations because of a failure on the customer to perform theirs. Keep an eye out for our article for more detail on that.