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Business can be unpredictable for a supplier, and unexpected events can sometimes disrupt your ability to fulfil contractual obligations. A force majeure clause can help to safeguard your business when unforeseen events occur. You may wonder if this clause is always needed, especially if your services or industry are low risk. This article explores the purpose of a force majeure clause and whether you need one in your contracts.
What Is a Force Majeure Clause and How Does It Work?
A force majeure clause relieves your business from contractual obligations when unexpected events occur. It typically limits liability if unforeseen events make it difficult or impossible to fulfil contractual duties.
Depending on the wording of the clause, it can excuse a party from performing their obligations, explain delays, allow an extension of time, or permit contract termination.
Common force majeure events include wars, natural disasters, pandemics, and other significant disruptions. If these events occur, they can significantly hinder a business’s ability to perform its obligations.
If you decide to include a force majeure clause, you must ensure precise drafting to clearly define the events covered, the consequences, and notification requirements. Clear language in your clause will help ensure both parties understand the clause’s implications. Your business should also regularly review the clause to ensure it remains helpful and practical. As business environments and potential risks evolve, updating this clause can help ensure it provides adequate protection over time.
When Might You Omit a Force Majeure Clause?
Sometimes, omitting a force majeure clause might make sense for your business. For short-term, low-value contracts with minimal risk, a force majeure clause might seem unnecessary or not worth the cost of drafting and negotiating the clause.
Additionally, specific industries might not typically include such clauses, and you might omit the clause to streamline negotiations. However, omitting a force majeure clause does come with risks, as explored below.
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Is a Force Majeure Clause Necessary?
While not mandatory, having a force majeure clause is highly advisable for the following reasons:
- including this clause provides essential risk management, protecting your business from unforeseen events that could disrupt contract performance;
- it offers clarity by defining the scope of events and consequences, ensuring both parties understand their rights and obligations in case of a disruption; and
- a well-drafted force majeure clause also reduces the likelihood of disputes by providing a clear framework for handling unforeseen circumstances, minimising ambiguity and the chance for conflict.
Force majeure clauses are not automatically included in commercial contracts. You should explicitly include this clause in your contract if you want to rely on it. Without it, your business might have to rely on the legal doctrine of frustration.
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Frustration applies when an unforeseen event makes contract performance impossible. However, frustration operates in narrow circumstances and offers limited relief and remedies, making it less reliable than a force majeure clause. Courts are generally reluctant to deem a contract frustrated, applying this doctrine as a last resort. Overall, frustration has a narrow application and a high threshold for proving that performance is impossible.
For your best protection, you should ensure your contracts include a well-drafted force majeure clause to protect your position. Including a force majeure clause mitigates risks and can provide peace of mind for your business, knowing you are protected if unforeseen events impact your performance. The Covid-19 pandemic made many suppliers prioritise these clauses in their contracts.
How Does a Force Majeure Clause Impact Contractual Negotiations?
You may question whether you need this clause during contract negotiations, especially if a customer has difficulty with the clause or parts of it and seeks to negotiate it. In contractual negotiations, be prepared for customers to push back against including a force majeure clause. Customers may use their bargaining power to resist the clause’s inclusion or narrow its scope. In some industries, force majeure clauses are not standard practice, leading customers to question their necessity.
When customers resist including a force majeure clause, you should ensure you understand the risks of deleting it. For instance, you should consider the likelihood and potential impact of unforeseen events on contract performance. If the risk is significant, you may need to negotiate with your customers to persuade them to include the clause in your contract.
However, legal advice can guide you on the best course of action before you agree to make amendments to the clause.
Working with a commercial contract lawyer can support your business during contract negotiations. A contracts lawyer can help your business put its best foot forward with customers and aim to convince them to include a force majeure provision. A lawyer can also generally guide you on force majeure clauses and their importance for your business projects.
Key Takeaways
Overall, a well-drafted force majeure clause can be a valuable tool for managing risk in a contract. It can provide clarity and offer solutions and relief in the case of unforeseen events that could hinder your contractual obligations’ performance. For suppliers, including this clause is a sensible measure that can significantly help reduce risk. If a customer seeks to negotiate the clause, you can seek legal advice for guidance on handling negotiations.
LegalVision’s experienced contract lawyers can provide tailored advice on contracts and using a force majeure clause, as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
1. What is a Force Majeure Clause?
This type of clause relieves your business of contractual obligations when unexpected events occur. It typically limits liability if unforeseen events make it difficult or impossible to fulfil contractual duties. Common force majeure events include wars, natural disasters, pandemics, and other significant disruptions. If these events occur, they can significantly hinder a business’s ability to perform its obligations.
2. Why is a Force Majeure Clause Important?
A force majeure clause is crucial because it provides vital risk management for your business. Including this clause protects you from unforeseen events that could disrupt contract performance.
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