A force majeure clause is a standard contract clause that exists to protect businesses from situations beyond their control. The term “force majeure” defines events that one party considers beyond their control. The event is often outside their ability to plan for or predict, such as an unexpected natural disaster.
In this article, our contract lawyer, explores the benefits of a force majeure clause and what is (and isn’t) covered under these clauses.
The term “force majeure” defines events that one party considers beyond their control. The event is often outside their ability to plan for or predict, such as an unexpected natural disaster.
A natural disaster typically covers any event where property damage results from fire, flood, earthquake, hurricane or other weather-related events.
This clause can allow a party to suspend or end the contract.
Parties may not be obligated to fulfil a contract when a force majeure event occurs. However, this does depend on the wording of the clause.
A company is unable to deliver products on time because of an earthquake or other natural disaster. The company might not be at fault for failing to meet its contractual obligations. However, they need to have a valid force majeure clause in place.
A force majeure clause can protect your business if an out-of-control event disrupts your operations.
If you enter into a contract with a supplier, you may want rights if they can’t supply because of a force majeure event. The supplier can also use this clause as protection if there is an event that is outside of their control.
There are many other advantages to having these clauses included in contracts. For example:
Drafting this clause carefully and thoroughly is crucial in order for it to be legally binding. The language used should be clear and explain what qualifies as a force majeure event.
Here are some steps that can help you create a good one:
What do you mean by force majeure? Do you plan to include only certain events (i.e., natural disasters such as earthquakes), or everything from acts of God to acts of war? Also, define which party has the burden of proof in cases where an event is disputed.
The agreement should be signed by everyone who is entering into the contract. These documents should also contain language stating that these documents take precedence over any previous versions.
Either party may suspend or terminate this agreement if a Force Majeure Event occurs and:
Force Majeure Event means war, an act of terrorism, pandemics and epidemics, severe weather events, natural disasters and acts of God. It does not include industrial action or a failure to comply with this agreement.
Before you agree to an act of God clause, it’s important to understand how it works.
These clauses typically cover the following events:
However, you may wish to extend the coverage. For example, if you rely on raw materials to supply products, the clause may cover the availability of raw materials. This is because, without the raw materials, you cannot supply the goods. Your sale of goods contract should cover this.
If you’re not sure about the events the clause covers or how to use it, you can ask.
A good contract lawyer can explain the basics of a force majeure clause in layman’s terms. This will enable you to make an informed decision. You can decide on whether or not your business should include one in its contracts moving forward.
Assume your business is in a flood zone and knows that it’s at risk for severe flooding on a regular basis. Your business doesn’t take steps to protect its employees or property during these times (such as putting up sandbags). In this case, the resulting damage may not qualify under force majeure protection.
Again, this depends on the wording of the clause. However, it will typically require that even if a party had taken reasonable steps, they could not have avoided the issue.
Governmental regulations, company misconduct, and changes in financial conditions don’t qualify you for force majeure protection.
Yes, parties can and should negotiate the specific events covered, the notice period, and any obligations that remain despite a force majeure event.
Make sure the contract terms are not unfair.
Force majeure is a contractual provision that pre-empts disruption, while frustration is a legal doctrine that may apply when an event fundamentally changes the contract’s nature, making it impossible to fulfill.
Learn more about frustration of contract in this article.
Not necessarily. It typically suspends obligations for the duration of the event, but some clauses may allow for termination if the event continues for an extended period of time (such as longer than 3 months).
It’s important that the clause is drafted properly to allow adequate protection to your business.
Learn more about how to write a contract.
Contact us for a free consultation
We provide legal advice to business and individuals across Australia, no matter which State or Territory you are located. Our easy-to-access, online legal services mean that you can talk to our lawyers wherever you are, at a time that suits you.
4.8
Google Reviews
Don’t hesitate – reach out for your free legal assistance today. Your peace of mind is just a click or call away!
Construction contracts are complex and carry significant legal risks. For this reason, it is important to engage a contract lawyer. Construction contracts are a critical document in allocating legal risk.
Negotiating a commercial lease is an important step to secure premises on terms that meet your business needs and your budget. Effective negotiation can help you avoid costly mistakes and
Leasing business premises is a significant financial commitment for businesses. Businesses premises leases are usually lengthy legal documents that need to be properly negotiated and understood. This article is written
