The fundamental principle underlying the concept of force majeure is that contractual parties should not be held liable for performance obligations when unforeseeable circumstances beyond their control prevent fulfillment. Parties typically define force majeure events to ensure several outcomes:
- The affected party is not considered in breach of contract if they cannot fully perform.
- Extensions or suspensions of time are granted for performance.
- Options for alternative funding are explored.
- The affected party retains the right to terminate the contract if the event persists. Despite its widespread use in commercial agreements, force majeure is not a standardized term in English law, and its implications vary based on drafting. Here’s an example of a force majeure definition in a contract: “Force majeure” encompasses events, acts, facts, or circumstances beyond the invoking party’s direct control, which reasonable care could not have prevented, including but not limited to:
- Strikes or industrial actions.
- War, hostilities, terrorism, sabotage, vandalism, riot, insurrection, or civil commotion.
- Blockades or embargoes.
- Natural disasters (e.g., lightning, earthquakes, storms, floods, etc.).
- Epidemics.
- Impact by vehicles, vessels, or aircraft.
- Explosions, radiation, or chemical contamination.
- Changes in law or regulations.
- Acts of God. Importantly, lack of funds does not constitute force majeure. Each force majeure clause must be interpreted in the context of the contract it’s in. Certain events may constitute force majeure for one party but not the other. For example, if a permit required to import essential materials becomes prohibitively expensive or unattainable due to legal changes, the affected party can claim force majeure relief in the supply contract. While force majeure clauses are broadly defined, events expressly excluded from the definition are significant. For instance, in a power purchase agreement, fuel shortages may be excluded, shifting the risk to the borrower. In recent years, force majeure definitions have become elaborate, encompassing various ‘act of God’ events, with catch-all provisions to include any unforeseeable event. Well-crafted provisions require the claiming party to demonstrate that the event was beyond their reasonable control. The burden of proving force majeure falls on the party invoking it, who must show that the circumstances were beyond their control and couldn’t have been avoided or mitigated. Seamless operation of force majeure provisions across all project documents is crucial to ensure consistency and avoid unintended consequences.Mismatched provisions could relieve one party of obligations under one contract while leaving the other party exposed under a separate contract. The interplay between force majeure provisions in different contracts can be complex, particularly if governed by different laws or subject to arbitration in different forums.