Force Majeure In A Contract
The aftermath of recent large-scale disasters like the terrorist attacks of September 11, 2001, and the storm and flood damage caused by Hurricane Katrina in 2005 have reinforced the importance of carefully planning for the unexpected when negotiating meeting contracts. If disaster strikes, will you be able to cancel your meeting without liability for cancellation fees? Will you be able to go ahead with the meeting, despite reduced attendance, without liability for attrition damages? A key tool in managing the risk of such challenging circumstances is the force majeure clause.
A “force majeure” clause (French for “superior force”) is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. In the absence of a force majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of “impracticability” and “frustration of purpose,” which rarely result in excuse of performance.
Instead of relying on the common law, meeting planners can better achieve flexibility during times of crisis through a carefully negotiated force majeure clause. Whether negotiating with or without the assistance of legal counsel, the following key elements of a force majeure clause should be addressed: Determining which types of circumstances will be covered by the force majeure clause is essential. Provisions often cover natural disasters like hurricanes, floods, earthquakes, and weather disturbances sometimes referred to as “acts of God.” Other covered events may include war, terrorism or threats of terrorism, civil disorder, labor strikes or disruptions, fire, disease or medical epidemics or outbreaks, and curtailment of transportation facilities preventing or delaying attendance by at least twenty-five percent of meeting participants.
Courts tend to interpret force majeure clauses narrowly; that is, only the events listed and events similar to those listed will be covered. For example, while acts of terrorism might be a specified force majeure event, it does not necessarily follow that a court would also excuse a party’s performance based on “threats” of terrorism. Thus, it is especially important to specify any type of circumstances that you anticipate could prevent or impede your meeting from being held. To the extent possible, take into consideration the location of the meeting and any special needs or responsibilities of your organization and the meeting participants. What types of weather-related incidents are common for the meeting location? If there are major disruptions to transportation systems, will your participants be prevented from attending?
What percentage of reduced attendance would make continuing with the meeting inadvisable? Asking and answering these types of questions will help you anticipate and specify the most critical force majeure events for your meeting. Even so, not all potential events can be specified or anticipated in the contract. A concluding catch-all phrase should be appended to the list, such as “and any other events, including emergencies or non-emergencies,” to cover other unforeseeable events.
It is common to find boilerplate force majeure language in meeting contracts limiting excuse of the parties’ performance obligations only when it would be “impossible” to perform due to the unexpected circumstances. Impossibility is a high threshold; many circumstances will make holding a meeting inadvisable, even though it would still be possible to do so. For greater flexibility, consider instead excusing performance when it would be “inadvisable, commercially impracticable, illegal, or impossible” to perform. Additionally, even if you have negotiated a specified list of force majeure events, be sure to carefully read the language that comes before and after the list. Language appended after a comma can significantly alter the scope of the force majeure clause. For example, adding the words “or any other emergency beyond the parties’ control” to the end of a list of specified force majeure events serves to narrow the scope of triggering events only to “emergencies.” With such language, non-emergency circumstances making it inadvisable to hold a meeting would not be covered.
Although a force majeure clause should always allow for complete cancellation of a meeting without penalty, the cancellation will not always be the meeting planner’s preferred course of action. There may be circumstances in which going ahead with the meeting is preferred, even though the force majeure event will likely result in lower-than-expected attendance. However, groups that fail to meet minimum room or food and beverage commitments will often risk incurring significant attrition fees. To help make going-forward a viable option in such circumstances, the force majeure clause should be drafted to excuse liability associated not just with nonperformance (i.e. cancellation) but also with underperformance (i.e. failure to meet minimum guarantees). A carefully negotiated force majeure clause is an important tool for reducing the risk of liability associated with canceling or scaling back a planned meeting in response to a disaster. When significant resources are on the line, meeting planners should consider seeking the advice of legal counsel before signing contracts, and should also consider obtaining meeting insurance. Taking appropriate precautions at the outset can provide reassurance that, even in the worst of circumstances, you will have the flexibility to make the best decision for your meeting.
The provisions of the contract are also paramount. The force majeure clause will typically define the scope of the remedy available to the party and prescribe the steps to be taken to trigger the clause, for example, obligations to notify and mitigate. The contract may contain additional obligations which could also impact the operation of the clause, for example, obligations to adhere to ‘good industry practice’, or to put in place business continuity or disaster recovery plans and so forth. Overriding factors such as industry-specific regulation, codes of practice or international law may also be relevant. Besides, it should be remembered that any party claiming force majeure relief is usually under a duty to show it has taken reasonable steps to mitigate/avoid the effects of the force majeure event.
A force majeure clause will not be implied into a contract as a matter of law. Therefore, in the absence of an express force majeure clause, a party could try to claim that the contract has been frustrated. The doctrine of frustration provides that a contract may be discharged where circumstances arise which were not envisaged at the time the contract was entered into, and (2) which render the contract impossible to perform or transform a party’s obligations such that they are fundamentally different to those the parties originally agreed to perform. While similar in description to force majeure, the doctrine of frustration is a narrow one and requires a very high threshold to be met before it can be established. For example, a contract would not be frustrated simply because performance has become more expensive for a party to achieve.
Coming up next are some broad focuses to hold up under at the top of the priority list about explicit force majeure occasions, emerging from the case law:
• War: The presence of a “war” is chosen as an issue of sound judgment, not worldwide law. It is insignificant that there may have been no proper revelation of war, for instance, as on account of the Falklands and the Gulf clashes.
• Mechanical activity: Where the supposed force majeure occasion is the modern activity by the workforce of the asserting party itself, it is commonly important for the guaranteeing gathering to have found a way to determine the debate before it is permitted to depend on the force majeure proviso.
• Business impracticability: A successive inquiry is whether a gathering can guarantee force majeure if an agreement gets uneconomic to perform. The response to this is no.1 There is a differentiation between powerlessness to perform and burden. When in doubt, financial conditions, even a serious downturn, don’t add up to an occasion of force majeure.2 If the gatherings wish to shield themselves from changes in the monetary harmony of the agreement, the agreement ought to incorporate a different proviso to manage changes in economic situations, the accessibility of credit, price vacillation, etc. In certain examples, to dodge this issue being raised, one of the gatherings may well demand that such occasions are explicitly avoided from the meaning of force majeure occasion.
• Government activity: A typical occasion that might be secured by the meaning of force majeure occasion is government activity, for instance, the inability to give a permit or license, or the seizure or nationalization of advantages. This is frequently observed as conceivably wide-running, however, there are limits: the English courts host affirmed that if the asserting get-together has asked the pertinent government body to make the important move (right now, denial of a grant) at that point that activity can’t be depended on since it is not an activity past the guaranteeing gathering’s sensible control.3 If you request the move to be made, you can’t then depend on it to pardon non-execution.
• If there is in truth in the presence an occasion which falls inside the applicable meaning of force majeure occasion, the gathering looking for help from execution will, by and large, be required to show that:
• it was forestalled, blocked or deferred from playing out its legally binding commitments as an aftereffect of the occasion;
• the occasion/failure to perform was outside its ability to control; and
• there were no sensible advances the gathering could have taken to evade the occasion or the results (see the conversation of relief underneath).
The expression “forestall” has been deciphered to have significant tight importance: the gathering asserting force majeure must show that exhibition of its commitments was lawfully or truly outlandish, not simply more costly than what was initially anticipated.
A force majeure proviso will ordinarily give that the gathering looking to depend on the force majeure condition must inform the other party of the way that the force majeure occasion is obstructing its exhibition inside a predetermined period. The notification will ordinarily be required to incorporate nitty gritty data about the force majeure occasion and its effect on the gathering’s capacity to play out its commitments. Regularly the notice necessity will be a condition point of reference to the capacity of the gathering to depend on the help accommodated under the proviso. Consequently, it is significant that every single procedural necessity is agreed to, as the inability to do so could banish a gathering from depending on the provision. In certain nations, for example, China, government specialists will in some cases issue organizations with “force majeure endorsements” in situations where there is an occasion of wide effect (for instance, the COVID-19 episode of 2020). In the custom-based law setting, such a declaration might be helpful proof of the way that a force majeure occasion has occurred, yet it is improbable that the presence of the authentication all by itself will be adequate to conjure the utilization of the force majeure proviso (except if, for instance, the statement explicitly alludes to the issue of such an endorsement similar to a trigger).
The force majeure provision will likewise need to manage what the gatherings expect to occur if it is acknowledged that a force majeure occasion hosts forestalled a get-together from having the option to play out its commitments. Commonly, the provision will give that the gatherings’ commitments under the agreement will be suspended until the force majeure occasion (and its immediate impacts) has stopped to forestall execution of the agreement. It is judicious to remember for the statement a prerequisite for ordinary updates by the gathering depending on the condition. Most provisions will give that if the effect of the force majeure occasion isn’t lifted inside a specific time, for instance, 6 or a year, at that point the gatherings will reserve the option to end the agreement. The gatherings ought to likewise think about the thump on the impact on different arrangements under the agreement. For instance, it might be suitable to give that the term of the agreement will be reached out by the length of the force majeure occasion. There are some restricted conditions wherein the custom-based law teaching of frustration may go to the guide of a gathering unfit to satisfy its contractual commitments. An agreement might be released or “baffled” if something happens after the development of the agreement which renders it truly or monetarily difficult to satisfy the agreement or changes the commitment to perform into a fundamentally unique commitment from that embraced right now of passage into the agreement. In any case, case law shows that an extremely high edge must be met before an agreement will be viewed as disappointed: it isn’t adequate that it is essentially troublesome or uneconomic to play out the agreement, or that a level of hardship or burden is included.
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