Things that shouldn’t count as force majeure
Author: Steven Zolman
Define the term “force majeure” for me. Looking online, there are several:
- it’s French for “superior force”
- act of God: a natural and unavoidable catastrophe that interrupts the expected course of events (WordNet)
- a common clause in contract which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties (Wikipedia)
- an unavoidable catastrophe (Wiktionary)
So what’s the common theme? It’s the ability to AVOID a particular set of actions. In other words, force majeure events are those which are unavoidable or unforeseeable. If you only click one link above, do the one for Wikipedia and learn about the three-part test in French and international law for what constitutes a force majure event. UCC Section 2-615, “Excuse by Failure of Presupposed Conditions” and the Restatement of Contracts 2d, Section 261 “Excused Nonperformance” also include multi-part tests.
But we’ve gotten lax in contract drafting in the US and folks have assumed that force majeure clauses (those that allow a party to not perform as a result of one of these types of events) were continually written with actual unavoidable events listed. In fact, almost every force majeure clause I now see contains at least one, if not more, of the following things as force majeure events:
- strikes/labor disputes
- telecommunication difficulties
- supply chain problems
- terrorism and war (sometimes even phrased as “acts of the public enemy”)
- government regulation
Unfortunately, these are not force majeure events. Why? Because most of them can be planned for… and even something like terrorism and war (especially when they’re happening right now), should be planned for. If you can plan for them, they’re foreseeable. And if they’re foreseeable, they’re not unforeseeable. See where I’m going with this? 🙂
So when you strike these items out of the force majure event clause, you’re going to get push back because people don’t want to be responsible for planning in all eventualities. You’re not asking them to do it. Rather, you’re asking that contract performance not be hindered or halted as a result of things that are capable of having a backup plan. Which means that you could, if you were so inclined, draft language which allows for these items to be force majeure only if they were part of a backup plan that still was impeded. In other words, you’ll give these items force majure weight if the party claiming force majeure can show that they had planned for them properly, but still ran into trouble.
Oh, and by the way, force majeure also isn’t one-size-fits-all. Would you EVER list telecommunication difficulties in a contract with your telephone service provider? Additionally, force majeure protections should benefit BOTH parties, even if one party’s sole obligation is to cut a check. Payment can be made quite difficult by floods and hurricanes, just ask the good people in Louisiana, Alabama and Mississippi about business deals during Katrina.
Jeff: Another example of context-dependent force majeure clauses: Never allow “government regulation” to be force majeure in your contract with the government. Chris
by Chris Lemens on Tue, January 05, 2010 – 10:45am
Thanks for the explanation, Jeff. It’s always fun to pick apart these clauses and to see the other party squirm because he doesn’t understand why he has “acts of the Public Enemy” in the clause but doesn’t want to give in as a general principle. It took me some digging to figure out what the public enemy is – apparently it means “the other side in case of war”. I don’t know why “war” and “acts of the public enemy” need to be listed as two items then.
by Arnoud Engelfriet on Tue, January 05, 2010 – 11:10am
Jeff-good and thoughtful article. After Hurricane Katrina, my employer, a major multi-national oilfield service company, instituted a company wide review of all FM clauses in all contracts. We found that there was no consistency among our own form contracts. In addition to the excellent points you raise, we had to tackle such things as how long the event be in place before an FM is declared and even how do you notify a counter-party of an FM event. FM clauses should be given more scrutiny as they are a significant part of risk management. Tom
by Tom Fox on Tue, January 05, 2010 – 11:34am
Jeff: Your “foreseeable” test is rather tough, as many disasters are foreseeable. For example, I know that I should plan for the possibility of a hurricane hitting Long Island at some point. Perhaps what’s more significant is the consequences of the event in question. Force majeure provisions originated in contracts providing for future performance where hurricances and such like could directly impede performance–for example, construction contracts. Now you find them, unhelpfully, in all sorts of other contexts. I’m not sure it makes sense for a party to want the benefit of a force majeure provision even if their performance consists only of making payments. On that basis, you’d have force majeure provisions in pretty much every contract. Ken
by Ken Adams on Tue, January 05, 2010 – 1:08pm
Ken: In some special circumstances, I could see wanting a force majeure provision protecting me if my only real obligation was the payment of money. If I was entering a long-term strategic deal where the parties’ interests could diverge significantly over time and I was afraid that the other party would seize upon a failed payment as grounds to terminate even under a properly drafted termination-for-material-breach clause, then I would include one, especially if I was located some place where a natural disaster could affect the banking industry (many third-world countries, for example).</p> <p>An example might be where you get an exclusive license to an intellectual property for an extended period of time and make the investment in marketing it; you would not want to lose your license for a failure to make a royalty payment that was outside of your control. In a bad enough disaster, you might lose the ability to even calculate the amount of the payment.* (That said, much of the risk for the situation could be removed through a sufficiently long cure period, or perhaps an extension to the cure period in the case of disaster, etc.) </p> <p>But I agree with you that it should be far from the norm.</p> <p>Chris Lemens</p> <p>* This reminds me of a story my dad told me about when he was working for the Texas attorney general’s office defending state litigation. Apparently, their office caught fire; the damage to the building spread a fine layer of asbestos on everything. The government prohibited anyone from going into the building, even to get their files. This was before computers, so the state had no way to know anything — even what cases it had — until it got notices of default from the courts.
by Chris Lemens on Tue, January 05, 2010 – 7:13pm
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