Why You Should Include a Force Majeure Clause in Your Contract
< Back to Commercial ContractsForce majeure is a French term which translates to “superior strength”. Despite its foreign origins, force majeures frequently show up in Australian contracts. Force majeure clauses address what happens when events beyond the control of either party disrupt the contract. This article sets out what force majeures are and how a force majeure clause may benefit you.
What is a Force Majeure?
From a contractual perspective, force majeure is about risk allocation. The clause often addresses the consequences of a party breaching or failing to perform their contractual obligations as a result of certain events. A force majeure clause typically excludes a party’s liability if the reasons for their breach directly connected to one of these events. It is therefore crucial that any contract clearly defines the phrase ‘force majeure event’.
The general principles of a force majeure event are that:
- the event was outside the party’s reasonable control;
- it was not reasonably foreseeable the event would occur; and
- the party was not in a position to or was unable to prevent the consequences of the event.
Examples of when a force majeure clause would be useful include:
| Event | Example Force Majeure Event |
| Weather | Flash flooding may mean that a planned event becomes cancelled or postponed. A force majeure clause may protect the organisers from being liable to customers. |
| Threats and Evacuation | A bomb threat causing evacuation would mean a retail premises could not operate during standard business hours. A force majeure clause may protect the tenant in a commercial lease from liability due to not operating within the contractually agreed hours. |
| Third Party Inputs | Failures by a shipping company may mean that goods are delivered later than the agreed period despite a business’ guarantees. The business which sells these goods may find protection from liability arising from the delay of these goods. |
| Legislation | A business may sell goods to customers and later that good becomes illegal to sell. A force majeure clause may protect the business from its obligation to continue selling the goods to customers that have already purchased the good. |
What to Include in a Force Majeure Clause
For a force majeure clause to be effective, it is crucial to consider including the following terms:
| Definition | Force majeure events should be clearly defined so that parties understand what events may exclude their liability. |
| Notice Period | Notice period clauses may require the party affected by the force majeure event to notify the other party. The inclusion of such a clause encourages communication and is favourable to the party not affected by the event. |
| Mitigation | A provision may be included whereby a party is required to mitigate the effects of a force majeure event. The inclusion of this would favour the party not affected by the force majeure event. |
| Engagement of Third Parties | The party not affected by the event would benefit from a clause allowing them to engage another party to provide the goods or services if the other party has been affected by a force majeure event. |
| Ongoing Obligations | A force majeure clause may include a provision requiring that both parties fulfill obligations not affected by the force majeure event. This ensures that an event disrupting a nonessential part of the contract will not derail the whole agreement. |
| Termination | If a force majeure event continues indefinitely, it may be prudent to include a clause granting parties the possibility to terminate the contract. If you create such a provision, you should ensure it addresses the consequences of terminating the contract. |
Key Takeaways
Force majeure clauses are activated when the contract cannot be performed and none of the parties are at fault. Therefore, you ensure greater protection from unforeseen events by expressly including a force majeure clause in your contracts. As such, you should make sure to:
- determine whether you will benefit from a force majeure clause. To do this, you should consider what unforeseeable events or risks you want to be protected from;
- analyse the specific provisions of the force majeure clause to determine whether it will benefit you. For example, if you receive goods or services, the clause should be drafted carefully so the provider cannot rely on it for all potential events; and
- remember that the force majeure clause is for events beyond the reasonable control of a party. Consequently, you cannot rely on the clause if the contract’s disruption stems from your actions or failures to act.
Force majeure clauses are important tools in minimising your liability in circumstances outside your control. If you would like assistance in drafting a contract to include a force majeure, contact one of LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
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