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Entering commercial contracts with clients and other businesses requires your attention to precise wording as a business owner. You may wonder if your company should use force majeure clauses in your business contracts in case of a force majeure event. This is because you may be vulnerable to legal action if you cannot perform your contractual obligations. This article will explain what a force majeure clause is and whether it is necessary to include one in your commercial contracts.
What Does a Force Majeure Clause Contain?
Force majeure clauses aim to guard your business. They do so where an extraordinary event occurs that makes the performance of the contract near impossible. Usually, the non-performance of a contract will allow the other party to make a legal claim against you. However, with a force majeure clause in place, you can rely on it to avoid being bound by the contract. In this way, they should only apply in limited circumstances, acting as a safety net to guard against genuinely unexpected events. Therefore, your company may want to include force majeure clauses in its business contracts.
Advantages of a Force Majeure Clause
Helping Your Business Avoid Unforeseeable Events
Once you enter into an agreement with another business, you will be legally bound to comply with the promises you made. This could be the delivery of an item or service performance).
A force majeure clause aims to help your business escape liability. It does so when an event outside your reasonable control makes the performance of the contract near impossible.
For example, suppose a company books your DJ services at a town hall on a specific night. Unfortunately, the town hall fuse box catches fire three nights before the event and requires four weeks to fix. Likewise, your company cannot provide a DJ set without electricity at the venue. In the absence of another venue or date, you can likely rely upon the force majeure clause in your business contracts without breaching the contract.
Providing an Opportunity to Renegotiate Dangerous Events
Alternatively, there may be situations where performing the contract becomes difficult but not impossible.
Let us say that your business promised to provide musical entertainment at outdoor parties. However, there is a severe weather warning for that evening involving a warning of a threat to life.
Technically, English law holds that the parties should carry out a contract and failure to do so will result in a breach. Accordingly, you will need to include explicit wording in your contract that allows you to escape performance in severe weather circumstances with an identifiable threat to life.
Absent this explicit wording, the other party could request the party move inside instead. If there is room to do so and there is no significant threat from performing indoors during the heavy wind, your company is still likely to be bound by the contract.
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High Threshold for Use
While there are benefits to including a force majeure clause in your commercial agreements, they are challenging to enforce.
Unless there is a clear risk to life due to an unforeseen event (such as natural disasters, extreme weather conditions or unexpected danger at the location) or the performance of the contract turns out to be illegal, it is difficult to escape liability.
English courts only allow force majeure wording in exceptional circumstances, and it is always advisable to obtain expert legal advice before relying on force majeure clauses in your business contracts. Failing to do so and misusing one is likely to constitute a breach of contract and result in increased costs in future legal proceedings and potential compensation to the other company.
Key Takeaways
Force majeure wording can help your business avoid a contract’s performance where specific events render it near impossible. However, they tend only to be safe to use where the event in question is completely unexpected and outside the parties’ contemplation (such as terrorist attacks, fires or freak weather). The main downside of force majeure wording is the difficulty and risk involved in its use. As such, most business owners elect to obtain expert legal advice before relying on them to avoid performing contractual obligations.
If you need help drafting and using force majeure clauses, LegalVisions’s experienced commercial 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.
Frequently Asked Questions
Without a force majeure clause, your business may have to try and rely on the common law doctrine known as frustration. However, the frustration of a contract is even more challenging to rely on in court successfully. In most circumstances, you will have better prospects of escaping a contract if it contains force majeure wording.
Many companies attempted to use force majeure clauses during the Covid-19 pandemic. Generally speaking, a global pandemic was likely to be outside the contemplation of many businesses. However, as covid-related lockdowns and slowdowns in supply chains have been public knowledge since 2020, it is unlikely to be regarded as a completely unexpected event today.
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