19th Ave New York, NY 95822, USA

Key points to consider when drafting Force Majeure clauses

In the first article from the force majeure series we reviewed the definition (or lack thereof) of force majeure and how courts determine whether a force majeure event has occurred. As discussed in the US there is no standard criteria to prove force majeure. Instead, courts will look to a contract’s language to determine if a party can rely on the force majeure clause to suspend performance.

In light of this, here is a list of key provisions to consider when addressing force majeure in a contract:

  • Include a definition of force majeure, as there is no specific meaning for this term in common law. Don’t simply state that a party can suspend performance due to an event of “force majeure”.  The contract should define this event.
  • The definition of force majeure should reflect your risk and likelihood of invoking the clause. If you’re a supplier, you will want the definition to be as broad as possible.  Conversely, if you’re the customer, you may want a narrow definition of force majeure, limiting it to only certain specific events. Having said that, if you’re a customer with a high level of risk under the contract, you may want to minimize this risk through a broad force majeure clause. For example, if you must purchase high minimum volumes of goods or incur a hefty penalty, then you may want a broader force majeure clause to reduce your risk if an event happens that prevents you from making the minimum purchases.
  • When defining the event of force majeure, focus on the effects of the event, not simply specific events. The effects may be easier to prove and result in a broader definition for force majeure. For example, a supplier of direct materials will want an event of force majeure to include events resulting in the unavailability of raw materials. Courts tend to narrowly interpret the language of a contract. If you only focus on the events themselves (e.g. fire, hurricane) and a different event happens – locusts destroy the raw material crop – that has the same effect, but isn’t listed in your definition, there’s a greater risk a court will not consider it to fall within your definition.
  • If you clarify that a force majeure event must be unforeseeable, then the courts will look at the facts to determine if the event was foreseeable or not.
  • If you list particular events to define force majeure (e.g. fire, hurricane), do not follow the list with a phrase referring to “other similar” causes/events. Courts tend to narrowly interpret the contract language.  They may limit the application of the force majeure clause to only those events that are “similar” to the events specifically spelled out in the contract.
Jana King Allen

Partner

jana.kingallen@loganpartners.com

More about Jana
  • Rather than limiting the definition of force majeure events to specific occurrences and “similar” events, the party most likely to invoke force majeure will also want to include “any other reason not within the reasonable control of a party”. The courts may interpret this to cover a broad spectrum of events.[1]
  • In your force majeure clause, specify obligations a party must follow when invoking force majeure. This is particularly important if you are the party less likely to invoke force majeure.  For example, if you’re the customer using a carrier to transport goods, as part of the force majeure clause, you will want the carrier to use its best efforts to promptly deliver the cargo to its final destination at no additional cost to you, the customer.

[1] Specialty Foods of Indiana, Inc. v. City of South Bend, 997 N.E.2d 23 (Ind. Ct. App. 2013), transfer denied, 3 N.E.3d 539 (Ind. 2014).

Visit Us On FacebookVisit Us On TwitterVisit Us On Linkedin