Hurricane Sandy impacting the New York/New Jersey/Connecticut area serves as a good reminder of why force majeure clauses matter. Disasters occur regularly, whether natural or directly human-caused events like terrorist acts or war. Many agreements include language describing what happens to contractual obligations if a disaster or other unexpected event outside of the parties' control occurs. These provisions are known as force majeure clauses. They rarely come up, but matter when they do.
What is a Force Majeure Clause?
A force majeure clause is a contractual provision that establishes what happens to performance under the contract if a "force majeure" event occurs. "Force majeure" events are events beyond the parties' control. They are often but not always listed in a non-exclusive list in the force majeure clause itself. Force majeure events typically include: accidents, acts of war or terrorism, civil or military disturbances, and nuclear or natural catastrophes or acts of God. Strikes and work stoppages are also sometimes listed, typically with a caveat that parties are not required to resolve strikes. Parties are sometimes obligated to take efforts to avoid and remideate force majeure events (except labor-related ones). Economic occurrences, such as market crashes or price spikes, are sometimes explicitly excluded from being considered force majeure events. However, market crashes can occur as a result of disasters (e.g., post-September 11, 2001 stock market crash) and the underlying disaster could support a force majeure claim.
Note that force majeure clauses sometimes allow for contract termination in case of extended force majeure events.
Recent weeks have given several examples of force majeure events worldwide. Sandy caused companies such as Motiva to declare force majeure events at some facilities, different oil companies declared force majeure events related to operations in Nigeria and Angola, and a number of mining companies declared force majeure events related to labor disruptions in South Africa (e.g., Anglo American Platinum, Assmang).
Why You Might Need to Find Force Majeure Clauses In Contracts
Force majeure clauses can give an out for parties unable to meet their contractual obligations because of events beyond their control. Companies affected by force majeure events (or whose counterparties face force majeure events) should review their contracts to find out what the rules are in these specific situations. Force majeure clauses often require counterparty notifications (on the event of force majeure and its ending). And, as above, sometimes contracts are terminable if force majeure events last. It is important for companies that are experiencing force majeure events to find out what their agreeements actually say. Or even prepare in advance for unexpected events by keeping force majeure clause information in a contract management database.
How Kira Can Help Quickly Locate Force Majeure Clauses Over a Large Set of Agreements
Force majeure events can occur unexpectedly and require a quick response. At moments where time is short, lawyers overextended, and answers needed, our software can help quickly determine the impact of a force majeure-type event. Kira's cloud-based software rapidly reads contracts for user-specified provisions (including force majeure clauses) and puts findings into summary charts. Our software reviews documents in seconds per page—even experienced lawyers are much slower. Kira is cloud-based and requires no installation (though does require an internet connection, which Sandy made some of us realize is not necessarily easy to come by in a disaster). And Kira is simple enough you should be able to use it without training. Essentially, using our software, you can rapidly and automatically find and extract force majeure clauses across all of your contracts.
If you are very interested in force majeure clauses, a number of examples from various agreement types are on the next page.
Example Force Majeure Clauses
Here are a number of examples of force majeure clauses from different agreement types.
From a distribution agreement:
Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, terrorism, fire, explosion, flood, strike, lockout, embargo, act of God, or any other cause beyond the control and without the fault or negligence of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. Such excuse shall continue as long as the condition preventing the performance continues. Upon cessation of such condition, the affected Party shall promptly resume performance hereunder. Each Party agrees to give the other Party prompt written notice of the occurrence of any such condition, the nature thereof, and the extent to which the affected Party will be unable to perform its obligations hereunder. Each Party further agrees to use all reasonable efforts to correct the condition as quickly as possible and to give the other Party prompt written notice when it is again fully able to perform its obligations.
From a distribution agreement:
No Party to this Agreement shall be liable for failure or delay of performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control including, without limitation, natural disasters, fires, earthquake or storm, strikes, failures of public utilities or common carriers, acts of war, or intervention, acts restraints or regulations of any governmental authority, including compliance with any order of any governmental considerations; provided that any such delay or failure shall be remedied by such Party as soon as possible using commercially reasonable efforts after removal of the cause of such failure. A Party suffering such delay or which expects to suffer such delay shall promptly notify the other Party in writing of the cause and expected duration of such delay. In the event a delay lasts or is expected to last more than thirty (30) days, then either Party shall have the option to terminate this Agreement upon written notice.
From a supply agreement:
Each of the parties hereto shall be excused from delays in performing or from failure to perform hereunder to the extent that such delays or failures result from causes beyond the reasonable control of such party, including, but not limited to, forces of nature, acts of God, strikes, lockouts, wars, blockades, insurrections, riots, epidemics, restraints or requirements of any government or government agency, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, unavailability of raw material or supplies, strandings, perils of the sea, the binding order of any court or governmental authority which has been resisted in good faith by all reasonable means, and other cause, whether of the kind enumerated or otherwise, not reasonably within the control of the party claiming suspension. Failure to prevent or settle any strike shall not be considered to be a matter within the control of the party claiming suspension. However, in order to be excused from delay or failure to perform, such party must act diligently to remedy the cause of such delay or failure.
From a supply agreement:
If either party is affected by Force Majeure it shall promptly notify the other party of the nature and extent of the circumstances in question.
Notwithstanding any other provision of this Agreement, neither party shall be deemed to be in breach of this Agreement, or otherwise be liable to the other, for any delay in performance or the non-performance of any of its obligations under this Agreement, to the extent that the delay or non-performance is due to any Force Majeure of which it has notified the other party, and the time for performance of that obligation shall be extended accordingly.
If at any time the Company claims Force Majeure in respect of its obligations under this Agreement with regard to the supply of the Product, the Purchaser shall be entitled to obtain from any other person such quantity of the Product as the Company is unable to supply.
From a lease:
Excusable Delays. The delay or inability of either party to perform any obligation to be performed by it pursuant hereto when required (other than the obligation to make payments as provided herein), if caused by reason of “Force Majeure” (as hereafter defined) will not constitute a default nor subject the party so failing to any liability to the other. The party affected by or anticipating a Force Majeure will promptly notify the other by the most expeditious means, confirming in writing within ten (10) working days, the details thereof and of its expected duration and the estimated effect upon its ability to perform its obligations hereunder. Such party will promptly notify the other party when Force Majeure circumstances have ceased to affect its ability to perform its obligations pursuant to this Lease.
Force Majeure. The phrase “Force Majeure” means any act of God or the public enemy; explosion; fire; storm; lightning; earthquake; flood; drought; strike; lockout or other labor trouble; riot or civil disorder; sabotage; blockade or embargo; war (whether or not declared and whether or not the United States is a participant); Federal, State or Municipal law, regulation, order, license, priority, seizure, requisition or allocation, whether or not valid; inability of Lessee or Lessor to obtain raw materials, equipment, fuel, power, labor, or transportation equipment; machinery or equipment breakdown of the Plants or a supplier’s plant, delay or accident involving transportation equipment; or any other circumstances of a similar or different nature beyond the reasonable control of the party affected thereby.
From a franchise agreement:
We shall not be responsible or liable for delay or failure in the performance of this Agreement, if such delay or failure is due to any cause beyond our control, such as, but not limited to, strikes, scarcity of labor, fires, floods, storms, earthquakes, explosions, accidents, breakage of computers, scarcity of materials, fuel or transportation, and delays or defaults caused by public carriers that cannot reasonably be forecast or provided against, embargoes, governmental regulations or orders, perils of navigation, acts of public enemies, mobs or rioters and acts of God.
From an indenture:
In no event shall the Trustee be responsible or liable, nor shall the Company be responsible or liable to the Trustee, for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, and nuclear or natural catastrophes or acts of God; it being understood that the Trustee or the Company, as the case may be, shall use reasonable efforts which are consistent with accepted practices to resume performance as soon as practicable under the circumstances.