Force Majeure Clauses in Commercial Contracts

Force majeure clauses are contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations. In reviewing and negotiating commercial contracts we find parties often skip through force majeure clauses on the basis they perceive them as just another boiler plate clause. This is a mistake as force majeure clauses often end up being tested. 

Force majeure clauses vary a good deal, with some requiring the performance of the contract to have been prevented by the event, while others use the lower threshold of the performance being hampered or delayed. There are also often included minimum timing thresholds before an event can be considered as force majeure.

There is no implied application of force majeure under English law (unlike in some other jurisdictions). Courts here will seek to enforce the performance of a contract – just because a contract has become commercially inviable for a party will not likely be considered a force majeure event unless the situation is covered by express wording in the force majeure clauses. 

An example of a force majeure situation could be a situation where company is unable to fulfil its contractual obligations due to a flood that severely damages its manufacturing plant. As the flood had made made it impossible to produce and deliver goods on time, the company may seek to invoke the force majeure clause in a contract for the supply of its goods on the basis the flood (being an unforeseen and uncontrollable event) has prevented it from performing its duties, thereby excusing it from liability for the delay or non-performance.

Key Considerations 

1. Defining Force Majeure Events
A well-drafted clause should clearly define what constitutes a force majeure event. Common examples include natural disasters, war, terrorism, or government actions. However, recent events such as the COVID-19 pandemic and sanctions on Russian entities have highlighted the need to expressly include specific provisions such health crises or supply chain disruptions.

2. Consequences of a Force Majeure Event
The clause should specify the consequences of triggering force majeure. This may include suspension of obligations, extension of deadlines, or termination rights if the event persists. Ambiguous clauses can lead to disputes over whether the event genuinely prevented performance or merely made it inconvenient.

3. The Importance of Mitigation
Under English law, there is a continuing duty on the parties to mitigate force majeure events. Failure to do so can limit the protection offered by the clause. Clear wording regarding mitigation obligations should also be included.

Conclusion
Force majeure clauses are critical in protecting businesses from unforeseen risks and so should be seen as a crucial part of risk management strategy. The effectiveness of any force majeure provision depends on precise drafting. Regularly reviewing and updating these clauses ensures they remain fit for purpose in a rapidly evolving commercial and geopolitical landscape.

If you have any questions regarding this topic or commercial contracts, please do not hesitate to contact me here or our commercial team here.