Benefits of Including A Force Majeure Clause in Your Contracts

If you frequently enter into contracts with another business, you may consider including force majeure clauses. This can be a useful way of protecting your operations from unforeseen events, including, for example, COVID-19-related problems or supply chain issues. 

This article will explain what a force majeure clause is, with some examples of the normal terms of a force majeure clause. It will also outline the benefits of including a force majeure clause within your commercial contracts.

What is a Force Majeure Clause?

Force majeure rules concern situations where an unforeseen event outside your control prevents you from fulfilling contractual obligations. The literal translation of ‘force majeure’ is ‘greater force’. In other words, rules on force majeure are about situations where a greater force prevents the contract’s performance. 

A force majeure clause works to limit liability for breach of contractual obligations. This applies if the reason for the breach is an event specified within the clause. 

Example of a Force Majeure Event

You can see, therefore, how useful a force majeure clause can be if you cannot complete the performance of your obligation because of something outside of your control. 

Importantly, you will not be able to benefit from the law on force majeure frustration exemptions unless you have specifically outlined a force majeure clause in your contract. In addition, you must also specify the force majeure event you agree to. 

Non-Pandemic Related Examples of Force Majeure Events

Some typical types of force majeure events include:

• acts of terrorism;
• labour disputes;
• natural disasters; and
• breakdowns of machinery.

In addition, the courts have also found some particular events as being valid force majeure events. For example:

• bad weather;
• football matches;
• funerals;
• miscalculations of costs.

Crucially, you must specify exactly what the meaning is in your force majeure clause. Simply using the words ‘force majeure’ will not be enough to protect you against liability. In addition, you must specify exactly what will happen in the case of a force majeure event. 

For example, if a force majeure event frustrates a contract, the parties can end their agreement without either party being liable to the other for breach of contract.

Similarly, you may also want to take a more flexible approach. For example, you may include a provision that says that if a contract is frustrated, the parties will have a reasonable amount of time to complete the contract regardless. This, of course, will depend on the type of contract you are entering. 

What are the Benefits of a Force Majeure Clause?

As you can see, a force majeure clause can help protect you against risks involved in your contract outside of your control. It can help set out the exact situation in which you will be free from liability. Therefore, force majeure clauses are a good way of keeping the parties on the same page without opening them up to risks from unforeseeable events.

Further, if you fail to include a force majeure clause within your contract, you may still be able to rely on the common law doctrine of ‘frustration’. The law of frustration performs a similar function to force majeure clauses. 

However, it is much more difficult to establish common law frustration, and you are better off simply including a force majeure clause within your contract. This will also save you the hassle of presenting your frustration argument to a court.

Key Takeaways

If you are dealing with contracts, it is a good idea to think about potential risks involved in the contract. Some of those risks may be that an unforeseen event can prevent you from fulfilling your obligation and, therefore, make you liable to the other party for breach of contract. One way of mitigating this risk is to include force majeure clauses in your contract. 

If you plan on doing so, you must clarify exactly what you take force majeure to mean and what scenarios it will cover. This is important, as, without this, a court may not accept your force majeure clause as legally valid. 

If you have questions about force majeure clauses or wish to include one in your contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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