What is Force Majeure?

Are you signing a contract with your business associates? It would be an excellent option to ensure that you include a force majeure clause in your contract because unfortunate and unforeseen events do not knock at your door before coming. Force Majeure is a legal binding between two parties that come into existence to minimize the risk of an inevitable situation that restricts the execution of the signed contract. It is introduced at the time of initiating the contract with the consent of both parties.

Applicability of Force Majeure

Force Majeure, a French expression, is a vital clause of your contract that eliminates unforeseen liability in the scenario of natural and inescapable catastrophes. These unprecedented and unfortunate events can disrupt your planned course of action of fulfilling your financial obligations. The event must cover the three fundamental factors for it to qualify under force majeure, namely unforeseeable, external, and irresistible. Force Majeure is a clause in supply agreements, power purchase contracts, distribution contracts, manufacturing agreements, real estate sectors, project finances, etc. The catastrophes could include a broad list of events upon which humans have little or no control. They include:

• Pandemic

• Riots

• Armed conflicts

• Nuclear warfare

• Asteroids

• Civil unrest

• Cyberattacks

• Super-volcanoes

• Earthquakes

• Hurricanes

• Explosion

• Tsunami

• Terrorist attacks, and more. 

Benefits of Force Majeure

It mitigates the risk arising out of events that are acts of God and beyond. The force majeure clause consequently helps the parties suspend their obligations until better time prevails. Thus, force majeure is a viable option to waive any liabilities emerging from such catastrophes. The clause of force majeure also contains a provision that gives authority to the parties to terminate the contract if the unfortunate event is prolonged. 

Inapplicability of Force Majeure

The contract with the force majeure clause can be executed in a circumstance where it is impossible to perform the obligations and beyond the party's control. However, the force majeure clause is not applied to situations where an alternative mode of performing the obligations is available, such as accidents of a delivery truck, ban of a particular currency, etc. A contract cannot consider the force majeure clauses based on challenges encountered while discharging the contract. Furthermore, at the time of entering the contract, the force majeure should undergo the test of foreseeability. If the party can execute the terms and conditions of the contract without unreasonable burden, force majeure would not be deemed fit as a clause to forgo the obligation. 

Key Aspects of Force Majeure

The parties should consider the following aspects while drafting a clause under the contract's legal supervision of force majeure.

• Specifically, list the unforeseen events that would be considered under the clause force majeure.

• Indicate the action plan the parties can undertake to support force majeure. 

• Alternatively, the parties should also enumerate the events when the appeal for force majeure would be abandoned.

• In addition, the parties should agree upon providing an extension of performing their obligation.

• Consequently, the parties should also decide the circumstances under which they can terminate the execution of the contract.

• The party should also specify that force majeure is not a provision to blanket negligence of the obligatory party due to non-performance caused by a natural and casual approach.

Author: Shradha Kabra