Force Majeure
Candlefocus EditorForce majeure clauses have become an important part of mitigating risk in contracting, as well as allowing both parties to benefit from anticipated performances. They offer companies a form of insurance policy against activities outside their control, making them less likely to suffer unforeseen losses and financial distress. Typical force majeure events may include natural disasters, war, pandemics, fires, equipment failure, strikes, civil disobedience, or accidents. Institutions may also provide exceptions such as acts of God, floods, hurricanes, tornadoes, tsunamis, power outages, terrorist attacks, cyber threats, interference by a third party, and other matters beyond the organizations control.
Importantly, incidents are only considered force majeure events if the primary reason for the failure or delay to perform is caused by the listed criteria. This means that if the involved parties’ failure to perform is due to their negligence or direct actions, the parties cannot take advantage of the force majeure clause. In addition, force majeure does not affect contractual obligations that are related to the performance of a contract, such as payment obligations and default provisions.
Force majeure can be a successful way to contain risk, avoid litigation, and preserve the value of a contract. Parties can avoid breach of contract by invoking the clause, giving them the chance to work out a different approach to fulfilling their respective obligations. It is crucial, however, to ensure that the clause clearly identifies force majeure events and stipulates what are acceptable remedies.