WE TAKE COMPLEX BUSINESS CASES ON CONTINGENCY

When Contracts Meet Chaos: Legal Considerations for Force Majeure and Beyond

You’ve probably heard of the term “legalese” – used to describe the way a legal document can read like a foreign language to the average person or business owner.

This is one of the reasons people hire lawyers to help with business documents, negotiations, and contracts, since going through the nitty-gritty of the details can be burdensome. Without a legal education, most will struggle to decipher all the terms and understand all the implications.

What helps is that most of us, attorney or not, have a good understanding of the essence or “spirit” of the law. With regard to contracts, we can appreciate how agreements are reached and that this signed piece of paper exists to protect the interests of the parties involved.

For a simple exchange of services, a contract can be very straightforward.

When it comes to longer-term business agreements involving multiple parties, significant investments, or known risks, things may get a little bit more complex. These contracts are more extensive and cover more ground, so to speak. Every detail is discussed, potential scenarios are brought up, and solutions and expectations are laid out. Penalties are put in place for accountability, enforceable in court if necessary.

But what if a situation came up that nobody had considered? Could your contract handle it?

Defining “force majeure”

For those familiar with business contracts, you have likely come across the term. It is French for “superior force,” and is a legal parlance that covers “unforeseen circumstances or events” beyond the control of parties involved that can disrupt or prevent the fulfillment of contractual obligations.

Why the need for force majeure clauses

When something big and unexpected happens, like a natural disaster or a major crisis, it can make it impossible for people or businesses to do what they promised in a contract.

Force majeure clauses in contracts can allow them to avoid penalties or legal trouble when these big problems interfere with their plans. But it’s important to have clear agreement terms ahead of time about what counts as a force majeure event and what to do if one occurs.

Force majeure and its impact

Cases defined as force majeure usually include “Acts of God”— unforeseeable and uncontrollable events of natural origin – or major disruptions like wars, attacks, civil unrest, health crises, etc.  Many lawyers just skim the laundry list of force majeure events without giving them much thought.  However, these clauses can have significant legal impact.  Sophisticated lawyers may slip in events that are not typically in these clauses, including strikes, labor shortages, and supply shortages.  These clauses came the forefront during the COVID-19 crisis.  Those who had lawyers smart enough to focus on what some considered “boilerplate” clauses came out ahead.

This is because force majeure events can give a break from contractual obligations, depending on what the agreement says. These clauses might let you stop or end the contract if the problem continues.  It can protect parties from no longer having to perform an unprofitable contract.  However, it is not protective enough, it can force parties to still perform despite increased cost of performance.

If there’s a force majeure event, you have to follow the terms of the contract and tell the other party quickly to activate and apply the protections. You’re also supposed to try to find other ways to meet your obligations during the problem, or you could still be held responsible.

Interested parties may argue about whether force majeure applies, and the parties might have to go to court or use other methods to sort it out.

Since you can’t predict external events, it’s important to carefully write force majeure clauses in new contracts to deal with nonspecific risks and possible issues with getting things done.  How broad or protective the clause should be, depends on whether you are the party performing the contract or the party paying for performance.

Properly drafted and executed force majeure clauses can help provide clarity in times of unforeseen circumstances, ensuring that parties can navigate challenges while preserving the integrity of their contracts and business relationships.  But a good lawyer knows how to make them both a sword and shield.

Please enable JavaScript in your browser to complete this form.
Inquiring about