Force majeure

"Force Majeure" (French for "superior force") is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as war, strike, riot, crime, act of God (e.g., flooding, earthquake, volcano), 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 (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.

Purpose

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.

A "force majeure" may also be the overpowering force itself, which prevents the fulfillment of a contract. In that instance, it is actually the Impossibility or Impracticabilitydefenses.

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 U.S. Navy aircraft that 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 allowedto land without interference.

Importance

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 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 fulfill 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:; Externality : The defendant must have nothing to do with the event's happening.; Unpredictability : If the event could be foreseen, the defendant is obligated to have prepared for it. [ [http://www.lufthansa.com/online/portal/lh/cmn/generalinfo?nodeid=1818501&l=en#1 Lufthansa - Terms & Conditions ] ] 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 that which 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 it had an antecedent of half a century past.; Irresistibility : 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 irresponsibility that is applicable throughout French law.

On the other hand, the German understanding goes under the German translation of "vis major ( _de. 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 [http://bundesrecht.juris.de/bgb/BJNR001950896BJNE028002377.html §287 (in German)] ) or deprivation of property ("Sachentziehung," cf. BGB [http://bundesrecht.juris.de/bgb/BJNR001950896BJNE087702377.html §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 agree 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 event it is not always feasible or economical to do so. Concepts as damaging earthquake in force majeure clauses does not help to clarify disruption, especially in areas were there are no other reference structures or most structures are not seismically safe. Ref [http://www.revistabit.cl/pdf/terremotos%20bit%2059.pdf (Spanish) Force Majeure Construction and Earthquakes] .

Sample "force majeure" clause

:"No Party shall be liable for any failure to perform its obligations where such failure is as a result of Acts of Nature (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (whether war is declared or not), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalisation, government sanction, blockage, embargo, labour dispute, strike, lockout or interruption or failure of electricity [or telephone service] , and no other Party will have a right to terminate this Agreement under Clause 19 (Termination) in such circumstances."

:"Any Party asserting Force Majeure as an excuse shall have the burden of proving that reasonable steps were taken (under the circumstances) to minimize delay or damages caused by foreseeable events, that all non-excused obligations were substantially fulfilled, and that the other Party was timely notified of the likelihood or actual occurrence which would justify such an assertion, so that other prudent precautions could be contemplated."

See also

* Act of God
* Contract law
* Hardship clause
* Hell or high water clause
* Impossibility
* Mutual assent
* Substantial performance

References

* "Mitra's Legal & Commercial Dictionary". Pages 350-351. 4th Edn. Eastern Law House. ISBN 978-8171770151.

External links

* http://www.newyorkfed.org/globaldoc/fmajuere.pdf
* [http://www.revistabit.cl/pdf/terremotos%20bit%2059.pdf (Spanish) Force Majeure Construction and Earthquakes]