What is force majeure and what do you need to know?

Everyone has probably heard the words “force majeure” without really understanding what they mean.

This article will explain what force majeure force majeure provisions are, how they work, and whether the coronavirus is a force majeure event.

What is force majeure?

Here is the simple force majeure definition: It translates literally from French as “superior force.” It is also defined as an event of effect that cannot be reasonably anticipated or controlled.

In business circles, it describes uncontrollable events (such as war or extreme weather conditions) that make it difficult or impossible to carry out normal business and are not the fault of any party.

Contracts include force majeure clauses to remove liability for similar natural and unavoidable occurrences that prevent participants from fulfilling their obligations.

Force majeure events and clauses

Force majeure events are certain acts, events or circumstances beyond the control of the parties.They can be an act of God such as natural disasters, as well as armed conflict and more.

A force majeure clause is a contract clause that usually excuses one or both parties from performance of the contract following the occurrence of such events. Its underlying principle is that on the occurrence of certain events which are outside a party's control, that party cannot be held accountable and is excused from, or entitled to suspend performance of all or part of its obligations. It will not be liable for its failure to perform its obligations under the contract, in accordance with the clause.

French law applies 3 tests to ascertain whether a force majeure defense is applicable. It has to be unforeseeable, external, and unavoidable. However, these concepts are defined and applied differently depending on the legal systems. There are questions about what is "foreseeable" in a legal sense. 

It is important to note that the concept of force majeure is derived from civil law and is not fully recognised under English common law. In common law systems, such as those of the US and the UK, force majeure clauses are acceptable but must be more explicit and fully defined regarding the events that would trigger them.

For a force majeure to be present, these 3 distinct criteria have to be satisfied simultaneously:

• the event is beyond the reasonable control of the affected party;
• the affected party’s ability to perform its obligations under the contract have been prevented, impeded or hindered by the event;
• the affected party has taken all reasonable steps to seek to avoid or mitigate the event or its consequences.

In fact, force majeure contradicts the concept of "pacta sunt servanda" (“agreements must be kept”), which is a key concept in civil and international law with analogs in common law. It is not usually easy to prove events were unforeseeable and to escape performing your contractual obligations, and it should not be so.

The International Chamber of Commerce applies a standard of "impracticability" to clarify the meaning of force majeure in relation to commercial contracts. According to this standard, it would be either impossible or unreasonably burdensome and expensive to carry out the terms of the contract. Of course, the event that causes this situation must be external to both parties, unforeseeable, and unavoidable. However, it is often very difficult to prove these conditions, and most force majeure defenses fail in international tribunals.

If your contract contains specific definitions constituting force majeure (and ideally ones that respond to local threats), it will hold better under scrutiny in any jurisdiction.

Doctrine of frustration in English law

If your contract doesn’t have a force majeure provision that deals with the event in question, you (as the affected party) should consider whether there is a potential remedy under the common-law doctrine of frustration.

For frustration to be applied, an unforeseen event must happen that is neither party’s fault but that makes the performance of the contract impossible or radically changes its nature from what was intended when the parties entered into it. If frustration is proved, the remedies are similar to force majeure relief. However, frustration is normally very difficult to prove.

If your contract contains force majeure provisions that deal with the relevant event, frustration is unlikely to be applicable.

Is Covid-19 a force majeure event?

Many contractual provisions provide a specific list of force majeure events said to be beyond the control of the parties, such as pandemics, epidemics or diseases. A specific reference to a “pandemic” makes it easier to claim a force majeure but still requires the other criteria for a force majeure test to be satisfied.

If the provision does not include such events, it is necessary to consider whether Covid-19 or its impact on a business / project is captured by a different concept, such as an act of God, action by government or a catch-all provision. There is usually the latter, worded as “events which are outside the reasonable control of the party affected.” It is clear that a pandemic such as the Covid-19 one qualifies in that case.

However, note that relevant here are the consequences of the coronavirus pandemic and its impact upon the ability of the affected party to fulfil its contractual obligations.

What happens when there are force majeure claims?

The consequences for the parties depend on the nature of the affected party’s obligations under the contract, as well as the consequences and remedies contemplated by the force majeure provision.

Usually contractual remedies include an extension of time to perform obligations or suspension of contractual performance for the duration of the force majeure event. If it extends over a longer period, some provisions may entitle the parties to terminate the contract.

Conclusion

Now you know what force majeure is, which events qualify as such and what your obligations and rights under those conditions and the contractual provisions are.

Be sure to always prepare and review your contracts carefully.

It is important to note that you can’t foresee everything or rely on force majeure by default, so it is highly recommended to seek legal advice before signing a contract, when reviewing one and in any cases with unforeseeable obstacles and disputes regarding performance of contractual obligations.

If you need help and more information, contact our highly qualified and experienced lawyers. We will help you with all legal matters.