What Is Force Majeure?
Force majeure is a clause that is included in contracts to remove liability for unforeseeable and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations. These clauses generally cover natural disasters, such as hurricanes, tornadoes, and earthquakes, as well as human actions, such as armed conflict and man-made diseases.
- Force majeure is a clause that is included in contracts to remove liability for unforeseeable and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations.
- These clauses generally cover both natural disasters and catastrophes created by humans.
- In some jurisdictions, there are three tests to determine whether a force majeure defense is applicable: The event must be unforeseeable, external, and irresistible.
- Questions about what is and is not foreseeable in a legal sense have been raised given the increased awareness of pandemics, asteroids, supervolcanoes, cyber threats, and nuclear warfare.
- Force majeure conflicts with the concept of “pacta sunt servanda,” a principle in international law that agreements must be kept and not wriggled out of.
Understanding Force Majeure
Force majeure is a French term that literally means “greater force.” It is related to the concept of an act of God, an event for which no party can be held accountable, such as a hurricane or a tornado. However, force majeure also encompasses human actions, such as armed conflict.
Generally speaking, for events to constitute force majeure, they must be unforeseeable, external to the parties of the contract, and unavoidable. These concepts are defined and applied differently depending on the jurisdiction.
The concept of force majeure originated in French civil law and is an accepted standard in many jurisdictions that derive their legal systems from the Napoleonic Code. In common law systems, such as those of the United States and the United Kingdom, force majeure clauses are acceptable but must be more explicit about the events that would trigger the clause.
Force majeure is a contract clause that removes liability for catastrophic events, such as natural disasters and warfare.
Force Majeure vs. Pacta Sunt Servanda
In general, force majeure conflicts with the concept of “pacta sunt servanda” (Latin for “agreements must be kept”), a key concept in civil and international law with analogs in common law. It is not supposed to be easy to escape contractual liability, and proving that events were unforeseeable, for example, is difficult by design.
As time goes on, the world is becoming aware of natural threats that we were previously ignorant of, such as solar flares, asteroids, pandemics, and supervolcanoes. We are also developing new human threats, such as cyber, nuclear, and biological warfare capabilities. These have raised questions about what is and is not foreseeable in a legal sense.
We are also becoming increasingly aware of human agency in events that have generally been considered external or acts of God, such as climatic and seismic events. Ongoing litigation is exploring questions of whether drilling and construction projects contributed to the very natural disasters that rendered them unworkable. In short, the concepts that underpin force majeure are shifting.
Example of Force Majeure
An avalanche destroys a supplier’s factory in the French Alps, causing long shipment delays and leading the client to sue for damages. The supplier might employ a force majeure defense, arguing that the avalanche was an unforeseeable, external, and unavoidable event—the three tests applied by French law.
Unless the contract specifically named an avalanche as removing the supplier’s liability, the court may well decide that the supplier owes damages. French courts have deemed an event foreseeable because a similar event had occurred half a century before. Similarly, a war in a conflict-ridden zone might not be unforeseeable, nor might capital controls in a struggling economy or a flood in a frequently affected area.
If a natural or other disaster happened in a place before, even many years ago, a repeat occurrence may not be considered unforeseeable.
Special Considerations for Force Majeure
The International Chamber of Commerce has attempted to clarify the meaning of force majeure (although it is not included in the organization’s Incoterms) by applying a standard of “impracticability,” meaning that it would be unreasonably burdensome and expensive, if not impossible, to carry out the terms of the contract.
The event that brings this situation about must be external to both parties, unforeseeable, and unavoidable. However, it can be very difficult to prove these conditions, and most force majeure defenses fail in international tribunals.
In any jurisdiction, contracts containing specific definitions that constitute force majeure—ideally ones that respond to local threats—hold up better under scrutiny. Even in systems based on civil law, the application of the concept can be strictly limited.
Is COVID-19 considered force majeure?
If COVID-19 made it impossible for a party to perform its contractual obligations, then, yes, it could qualify as force majeure. Emphasis should be put on the word “impossible” here. Should the party be able to perform its obligation, it would not constitute force majeure, regardless of how much more difficult or expensive honoring this commitment became in a COVID-19 environment.
It’s also worth noting that COVID-19 is not necessarily an unforeseeable event any longer. Several years have passed since the outbreak was first reported, and measures have been put in place to prevent the virus from spreading. Contracting parties will be expected to do everything in their power to mitigate the effects of COVID-19. It’s also possible that contracts signed after the beginning of 2020 with force majeure clauses will stress that the COVID-19 pandemic does not apply.
What are the three elements of force majeure?
In general, for an event to trigger a force majeure clause, it must be unforeseeable, external to the parties of the contract, and serious enough that it renders it impossible for the party to perform its contractual obligations.
What are examples of force majeure?
Events that could potentially trigger a force majeure clause include war, terrorist attacks, and a pandemic, or natural disasters that fall under the “act of God” category, such as a flood, earthquake, or hurricane.
The Bottom Line
In theory, force majeure clauses make a lot of sense. For one, they enable parties to better manage risk and protect themselves if something unthinkable happens completely out of the blue.
The biggest issue is that these clauses, by virtue of not always being 100% clear and transparent, generally favor the big guys. Big, powerful insurance firms can use these clauses as an excuse to wriggle out of their obligations. Conversely, if an average Joe stands to benefit from a force majeure exception, they might not have the financial muscle to prove that the event in question qualifies.