When unexpected disruption threatens your ability to meet contractual obligations, a force majeure clause could be your lifeline. Whether it’s a natural disaster, political instability, or a public health emergency, force majeure provisions help shield your business from liability when events beyond your control make performance impossible.
Understanding how these clauses operate – and how to draft them effectively – can help reduce risk, limit disputes and preserve commercial relationships. Our commercial law solicitors can help you futureproof your agreements, ensure they reflect the challenges your business may face, and build in the protections you need.
Contents:
- What counts as force majeure?
- What events can trigger a force majeure clause?
- How do force majeure clauses protect you in practice?
- What should you do if a customer or supplier claims force majeure?
- When does force majeure end, and what happens next?
- Can you use force majeure for financial or practical difficulties?
- What if your contract doesn’t have a force majeure clause?
- Drafting a force majeure clause that works when it matters
What counts as force majeure?
Force majeure events are acts, events or circumstances beyond the reasonable control of the party concerned. When a force majeure event happens, the party that is subject to the event is:
- excused from, or can suspend performance of, some or all of its contractual obligations, and
- won’t be liable for its failure to perform those obligations.
The types of obligations a force majeure event could impact include:
- payment of invoices within the agreed payment terms
- performing the services or delivering goods within the contractual timescales.
Force majeure clauses are relevant to various contracts, including sales of goods agreements, services agreements, distribution agreements and manufacturing agreements. They can help your business reduce its contractual risk exposure if things go wrong, however you should also consider limiting the liability of your business through carefully drafted contract terms, and regularly reviewing and updating your contracts – particularly in times of economic and political uncertainty.
What events can trigger a force majeure clause?
Sometimes, force majeure clauses can be very general and refer to an event that ‘prevents performance beyond the party’s control’. However, what counts as force majeure is usually defined in the contract and should always be adapted to fit the circumstances.
Examples include acts of God, hurricanes, earthquakes, strikes, and wars, as well as events such as terrorism, labour strikes, and government acts. Since COVID-19, they are also likely to include public health emergencies, pandemics, and epidemics.
How do force majeure clauses protect you in practice?
The party claiming a force majeure event occurred must prove that the event falls within the clause and that their non-performance was due to that event.
The force majeure clause should specify the steps they need to take. For example, they should:
- Give notice to the other party of the nature and extent of the relevant event, within a set timescale
- Try to mitigate the effect of the event
- Carry out their obligations in any reasonably practicable way, and
- Resume performance of their obligations as soon as reasonably possible.
For instance, a customer claims that a recent flood at its headquarters is a force majeure event and has affected its ability to pay its invoices. They will have to show that they have exhausted other options to mitigate the impact (for example, via loans or other forms of financial support). If the customer can pay part of an invoice, but not the full amount, their duty to mitigate means they must pay whatever is feasible.
What should you do if a customer or supplier claims force majeure?
If the other party claims force majeure, you will want your corresponding obligations under the contract to be suspended. This should be dealt with in your force majeure clause, which should also clarify that you won’t be liable for any failure or delay concerning the affected obligations.
For example, the customer in a software supply agreement claims force majeure and stops payment. The software supplier will want to cease supplying the software without incurring liability for non-performance, and this should be set out in the force majeure clause.
When does force majeure end, and what happens next?
Often, a force majeure clause sets out a timeframe after which, if the force majeure event continues, either party can terminate so that alternative commercial arrangements can be made. This avoids a scenario where the contract continues for as long as the force majeure event is in place, potentially for years.
The force majeure clause should also state what happens if a party makes a loss or gain due to a force majeure termination. For instance, a customer has prepaid for goods that can’t be delivered because transport strikes have impacted their supplier. The contract classifies this as a force majeure event, and the right to terminate is triggered; however, the customer wants a refund of the prepaid sums. A well-drafted force majeure clause will cater for this.
Can you use force majeure for financial or practical difficulties?
No. For example, suppose a party no longer requires the services or goods provided under the contract due to a change in market conditions but is not actually prevented from performing its contractual obligations. In that case, it cannot rely on force majeure.
The last global economic crisis prompted much litigation about whether economic difficulties constituted a force majeure event. If your business needs practical guidance on navigating economic uncertainty with stronger contracts, our commercial law solicitors can help.
What if your contract doesn’t have a force majeure clause?
A force majeure clause won’t be implied into your commercial contract. Include it in your agreements if you want to rely on force majeure.
Without a force majeure clause, a party might try to claim instead that the contract has been frustrated. This applies in minimal circumstances where an event makes it impossible to perform the contract. For example, the impact of Brexit on commercial contracts has been considered. However, frustration is rarely used and only offers restricted remedies, so you should not rely on it. A clearly drafted force majeure clause remains the most effective way to protect your contractual position.
Drafting a force majeure clause that works when it matters
Here are some points you should consider:
- What sort of events should trigger a pause or end to performance?
- How will a force majeure event affect specific contractual obligations? For example, what will be the effect on payment?
- Will the force majeure event release the parties from their obligations or suspend them?
- Will either or both parties have the right to terminate, or will termination be a last resort?
- Is an independent expert needed to decide whether an event qualifies as force majeure, or will the party relying on the event have the right to choose?
- Do you need a dispute resolution procedure in the contract, in case the parties disagree about what constitutes force majeure?
- How does force majeure relate to other contractual clauses? For example, a price review mechanism may better address increased costs.
Although much depends on the parties' relative bargaining position and the deal's circumstances, a well-balanced force majeure clause that meets both parties’ needs is generally the best option.
Build resilience into your contracts
Force majeure clauses are valuable for managing risk in unpredictable environments – but only if properly drafted and applied. A poorly worded clause can leave you exposed when it matters most.
If you need support negotiating, reviewing or enforcing force majeure clauses in your commercial agreements, speak to our commercial law solicitors. We’ll work with you to ensure your contracts are robust, fair and commercially sound – so your business can stay resilient, whatever comes your way.
