Contracts are all about solidifying expectations, planning for uncertainties and allocating risk – and that’s where a force majeure clause comes in.
A force majeure clause refers to some sort of overwhelming, unpredictable and unforeseeable situation that prevents one party from fulfilling their contract with the other party.
Essentially, it’s a safety net for situations when uncontrollable events caused by external forces disrupt normal business operations. When a force majeure clause is triggered, it effectively relieves the affected party from their obligations without any penalty.
What are examples of force majeure events?
Once largely overlooked, the events of 2020 highlighted the importance of force majeure clauses in contracts. Lockdowns, travel restrictions and supply chain disruptions left many companies unable to fulfill their contracts with others during that time.
However, force majeure clauses may also be triggered by things like war and civil unrest in an area, sudden changes in legislation (like the one that may soon affect TikTok), labor strikes, terrorist attacks and natural disasters, such as hurricanes, tsunamis, earthquakes and floods.
Generally, a force majeure clause will specify that the affected party’s performance must be truly impossible (or highly impractical) due to the triggering event. It isn’t enough to claim that being forced to fulfill a contractual obligation has become inconvenient or expensive, for example, because the cost of raw materials suddenly shot up in price.
These clauses are also typically scrutinized as far as what can truly be considered “unpredictable” outside events, and invoking one is usually not easy. A company may claim, for example, that wildfires in parts of Texas aren’t exactly unforeseeable simply because they’ve been happening for a while and seek to challenge another company’s use of a force majeure clause on that basis.
Contract disputes happen all the time, so it’s very important to understand every aspect of your agreements from the start – and seeking legal guidance when you are embroiled in a disagreement can help you find a practical solution.
