This week's Wiki-Wednesday topic is Force Majeure. An excerpt from the Wikipedia page on this topic is below, or you can click here to read the full article. The pick was inspired by a webinar I attended this past Friday by the Next Level Purchasing Association called “A Case Study for Proactive Supply Chain Management”. On the webinar, a global supply chain manager from a Fortune 500 company discussed her experience with the 2010 tsunami in Japan and the resulting disruptions to the business. Click here to read our notes.
And if you're still interested in more, we've offered up some additional thoughts on force majeure contract clauses on "The Point" blog: "Force Majeure, Hardship, Impossibility, Hell or High Water, Act of God or all of the above?"
Force majeure (French) or vis major (Latin) "superior force", also known as cas fortuit (French) or casus fortuitus (Latin) "chance occurrence, unavoidable accident", is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term act of God (such as flooding, earthquake, or volcanic eruption), prevents one or both parties from fulfilling their obligations under the contract.
However, force majeure is not intended to excuse negligence or other malfeasance of a party, as where non-performance is caused by the usual and natural consequences of external forces (for example, predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.
Time-critical and other sensitive contracts may be drafted to limit the shield of this clause where a party does not take reasonable steps (or specific precautions) to prevent or limit the effects of the outside interference, either when they become likely or when they actually occur. A force majeure may work to excuse all or part of the obligations of one or both parties. For example, a strike might prevent timely delivery of goods, but not timely payment for the portion delivered. Similarly, a widespread power outage would not be a force majeure excuse if the contract requires the provision of backup power or other contingency plans for continuity.
In the military, force majeure has a slightly different meaning. It refers to an event, either external or internal, that happens to a vessel or aircraft that allows it to enter normally restricted areas without penalty. An example would be the Hainan Island incident where a U.S. Navy aircraft landed at a Chinese military airbase after a collision with a Chinese fighter in April 2001. Under the principle of force majeure, the aircraft must be allowed to land without interference.
The importance of the force majeure clause in a contract, particularly one of any length in time, cannot be overstated as it relieves a party from an obligation under the contract (or suspends that obligation). What is permitted to be a force majeure event or circumstance can be the source of much controversy in the negotiation of a contract and a party should generally resist any attempt by the other party to include something that should, fundamentally, be at the risk of that other party. For example, in a coal-supply agreement, the mining company may seek to have "geological risk" included as a force majeure event; however, the mining company should be doing extensive exploration and analysis of its geological reserves and should not even be negotiating a coal-supply agreement if it cannot take the risk that there may be a geological limit to its coal supply from time to time. The outcome of that negotiation, of course, depends on the relative bargaining power of the parties and there will be cases where force majeure clauses can be used by a party effectively to escape liability for bad performance.
In Hackney Borough Council v. Dore (1922) 1 KB 431 it was held that "The expression means some physical or material restraint and does not include a reasonable fear or apprehension of such a restraint".
The expression bears more extensive meaning than "act of God" or vis major. As to delay due to breakdown of machinery, it comes within the words "force majeure", which certainly cover accidents to machinery. The term cannot, however, be extended to cover bad weather, football matches, or a funeral. Matsoukis v. Priestman & Co (1915) 1 KB 681.
The expression is undoubtedly a term of wider import than vis major. Judges have agreed that strikes, breakdown of machinery, which though normally not included in vis major, are included in force majeure.
In re Dharnrajmal Gobindram v. Shamji Kalidas [All India Reporter 1961 Supreme Court (of India) 1285] it was held that "An analysis of ruling on the subject shows that reference to the expression is made where the intention is to save the defaulting party from the consequences of anything over which he had no control".
Under international law it refers to an irresistible force or unforeseen event beyond the control of a State making it materially impossible to fulfil an international obligation. Force majeure precludes an international act from being wrongful where it otherwise would have been.
The understanding of force majeure in French law is similar to that of international law and vis major as defined above. For a defendant to invoke force majeure in French law, the event proposed as force majeure must pass three tests:
- The defendant must have nothing to do with the event's happening.
- If the event could be foreseen, the defendant is obligated to have prepared for it. Being unprepared for a foreseeable event leaves the defendant culpable. This standard is very strictly applied:
- CE 9 April 1962, "Chais d’Armagnac": The Conseil d'Etat adjudged that, since a flood had occurred 69 years before the one that caused the damage at issue, the latter flood was predictable.
- Administrative tribunal of Grenoble, 19 June 1974, "Dame Bosvy": An avalanche was judged to be predictable since another had occurred around 50 years before.
- The consequences of the event must have been unpreventable.
Other events that are candidates for force majeure in French law are hurricanes and earthquakes. Force majeure is a cause of relief from responsibility that is applicable throughout French law.
On the other hand, the German understanding goes under the German translation of vis major (höhere Gewalt) but seems conceptually synonymous with the common law interpretation of force majeure, comprehending both natural disasters and events such as strikes, civil unrest, and war. However, even in the event of force majeure, liability persists in the face of default by a debtor (Schuldnerverzug, cf. BGB §287 (in German)) or deprivation of property (Sachentziehung, cf. BGB §848 (in German)).
Force Majeure in areas prone to natural disaster requires a definition of the magnitude of the event for which Force Majeure could be considered as such in a contract. As an example in a highly seismic area a technical definition of the amplitude of motion at the site could be established on the contract base for example on probability of occurrence studies. This parameter or parameters can later be monitored at the construction site (with a commonly agreed procedure). An earthquake could be a small shaking or damaging event. The occurrence of an earthquake does not imply the occurrence of damage or disruption. For small and moderate events it is reasonable to establish requirements for the contract processes; for large events it is not always feasible or economical to do so. Concepts such as 'damaging earthquake' in force majeure clauses does not help to clarify disruption, especially in areas where there are no other reference structures or most structures are not seismically safe.
Force majeure and cas fortuit are distinct notions in French Law.
The following is an example of how force majeure might be described in a specific contract.
- Clause 19. Force Majeure
- A party is not liable for failure to perform the party's obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalisation, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service. No party is entitled to terminate this Agreement under Clause 17 (Termination) in such circumstances.
- If a party asserts Force Majeure as an excuse for failure to perform the party's obligation, then the nonperforming party must prove that the party took reasonable steps to minimize delay or damages caused by foreseeable events, that the party substantially fulfilled all non-excused obligations, and that the other party was timely notified of the likelihood or actual occurrence of an event described in Clause 19 (Force Majeure).