Also known as an ‘Act of God’ clause, a Force Majeure clause is widely known, yet narrowly understood. In general, an event that triggers a Force Majeure is an event that is beyond the control of either party that prevents or hinders the performance of the contract. For the duration of a Force Majeure event, the contractual obligations of the contract will be put on hold. Once the event has ended, the contract will recommence.
How Do you Draft a Force Majeure Clause?
Depending on how the parties choose to draft the clause, and provided it is sufficiently clear and complete, it can be drafted in several different ways. Here is an example of a Force Majeure clause:
Neither party will be liable for failing to perform its obligations under this agreement as long as the failure is triggered by something beyond its reasonable control. This clause does not excuse payment of monies due.
In most cases, the clause will also provide a definition of Force Majeure, which typically features a non-exhaustive list of example events that would trigger the clause, such as natural disasters. Depending on the contract lawyer drafting the terms of the clause, it will sometimes require notification to the other party of the particular event, any steps taken to recommence the contractual obligations, and the approximate time until the end of the event. Sometimes a contract lawyer will draft the clause so that either party can terminate the agreement if a Force Majeure event continues past a certain point.
What Is The Purpose Of A Force Majeure Clause?
Parties contracting without a Force Majeure clause may find themselves in situation whereby one party is unable to perform their respective duties of the contract due to an unforeseen event. This may lead to one party breaching the contract, which could either result in the contract becoming frustrated or one party suing the other party for damages following the termination of the contract. For this reason, it is wise to have a contract lawyer draft this clause into most agreements.
The most obvious benefit is that the duties of both parties will be postponed until the end of the event, avoiding any breach and allowing the contractual obligations to be satisfied. Although some contract lawyers will draft specific notice provisions into the agreement, this is not always the case. It is good practice, however, to notify the other party of the Force Majeure event as soon as practicable, including its specifics, what steps you are taking to address the event, and how long the event is anticipated to last.
Is a Force Majeure Clause Always Necessary?
A Force Majeure clause is utilized in almost every contract for services, consistently featuring in the following agreements:
- Agreements that include provisions for ongoing services, or agreements that have strict performance timeframes; and
- Agreements that rely on 3rd parties/suppliers for performance of contractual obligations.
What are the Risks of Not Having a Force Majeure Clause?
As with insurance, a Force Majeure clause is useless unless a Force Majeure event actually occurs. If you are engaging with another business and enter a Contract for Services, you should not take the risk of not having a contract lawyer draft a Force Majeure clause into the agreement. Without a Force Majeure clause, you risk being in breach of the contract and having to pay damages to the other party, despite the event being out of your control.
Usually a Force Majeure clause will outline steps to be taken which you are required to follow. If you do not stick to the exact procedure outlined in the agreement, the ‘suspension’ of the contract will not take place and you may be liable for non-performance of the contract.
A Force Majeure does not excuse a party for any breach following the event under any circumstances. The event must be unforeseen and the duration of the event must be minimized wherever possible. For more information regarding contractual obligations and how to draft the terms of a contract, contact LegalVision on 1300 544 755 to speak with one of our contract lawyers.