7 Things Any Business Student Should Know About the Force Majeure Clause

In the COVID-19 era, the force majeure clause has taken center stage in both business and legal discussions. Given the circumstances, it is safe to say that the said clause has become an essential concept that every businessperson and business student should be aware of.

Whether you are trying to understand the concept for your studies or professional needs, we’ve got you covered. Yet, as the subject is complex, you might need to do further research and read case studies to master it.

However, if you have your own ‘force majeure’ – an impending academic deadline, for instance – you might prefer to work with an essay writing service with personal essay writer and dig deeper into the subject later. If this is the case, you can scan this article to get a quick overview and return to it whenever you are ready.

So, here are the essential things you need to know about the force majeure clause.

Force Majeure Clause Definition

The concept comes from French civil law: ‘Force majeure’ is a French term that literally means ‘superior force’. Today, it is an accepted standard in many legal systems, especially those deriving from the Napoleonic Code.

In contracts, the clause serves to remove the parties’ liability when certain events occur. For an event to be considered a force majeure, it needs to be proven as:

unforeseeable;
external;
irresistible (unavoidable).

Common examples of such events are:

natural disasters (‘acts of God’);
epidemics and quarantines;
armed conflicts, and the like.

However, there are plenty of nuances, and juries always scrutinize each case rigorously before delivering a verdict.

Force Majeure Examples

Typically, for the provision to work in common law systems, the parties need to define the events in question as explicitly as possible. But even then, it can be difficult to prove these events as genuinely unforeseeable and unavoidable.

Here are a couple of examples.

The production company asks to suspend the screenwriters’ contracts because all projects are put on hold due to the government restrictions caused by the COVID-19 pandemic.
The party delivering goods applies to the said provision because its factories were damaged by a natural disaster.

In theory, both cases technically fall under the concept in question. However, the party bringing the case to court has to prove that the concept applies in its particular case.

Key Things to Know About the Force Majeure Clause

It Is a Contractual Concept

To be able to appeal to the force majeure concept, parties have to include the relevant provision in the contract. If they fail to do so, common law won’t apply the concept automatically, though they will still be able to appeal to other contractual rights and defenses. However, it is much safer to include the said clause in the contract.

It Is Governed by State Law

The said clause is governed not by federal but state law, and the way it is applied varies (sometimes, dramatically) from state to state. Therefore, it is crucial to understand how it works in the state where the parties are applying to a court to be able to predict the outcome of the proceeding.

It Can Be Construed Narrowly

Some countries and states can interpret the provision more narrowly than others, asking the party to explicitly define each event and requiring to prove that the event rendered performance under contract impossible, not ‘impractical’.

For example, New York courts famously interpret force majeure clauses narrowly, whilst in California, the concept is broader.

Force Majeure and ‘Act of God’ Are Not Interchangeable

Though the concepts of force majeure and ‘act of God’ are somewhat similar, they are not interchangeable. Generally, the latter is a narrower term that only encompasses natural disasters such as floods, tornadoes, tsunamis, earthquakes, and the like.

The former is broader as it also encompasses human actions such as armed conflicts, labor strikes, etc. Typically, force majeure clauses include ‘acts of God’ as well as other circumstances (often broadly defined as ‘other circumstances beyond the party’s control’).

Language Plays a Critical Role

As mentioned above, some jurisdictions demand that each force majeure event should be mentioned in the contract for the clause to take effect. Therefore, explicit wording is essential.

To increase the chances of the favorable outcome of the proceeding, it’s better to avoid too broad definitions such as ‘acts of God’, ‘governmental actions’, or ‘other events beyond the parties’ control’. For states that interpret the clause narrowly, too broad language is often the reason for ruling out force majeure applications.

Parties Providing Goods or Services Are Given Preference

As a rule, parties providing goods or services are more likely to win in court when appealing to the force majeure clause in their contracts. On the other hand, parties that are only obliged to fulfill financial obligations are typically in a less favorable position. However, there are exceptions – for example, real estate lease contracts.

Including a Force Majeure Clause Is Not a 100% Protection

Unfortunately, though, due to the specifics mentioned above, including a force majeure provision in your contract is not 100% protection against damages. However, it is still essential to include it and formulate it professionally to provide as much protection to your or your client’s business as possible.

Yet, all parties involved should be aware that the final decision depends on many factors such as the exact location, circumstances, the jury, etc.

In Conclusion

These days, when there is so much uncertainty in the world, it’s crucial to know how you can provide legal protection for your or your employer’s business and avoid losses. For that purpose, the force majeure concept can be an ideal tool.

Therefore, understanding this concept and knowing how to apply it is critical for every person currently involved in business operations or earning a business degree. In this article, we’ve pointed out some of the key things to know about the force majeure clause, but of course, one needs to study it deeper to master the subject.