Many suppliers are exposed to the risk that an event of force majeure prevents timely delivery or performance of their obligations. Force majeure clauses organise what happens if such circumstances (a ‘force majeure event’) occur.
Force majeure and business operations. Whether or not to include a force majeure clause, its wording and the definition of what entails an event of force majeure largely depends on the position of the contract drafting party. Force majeure clauses either favour the side where a force majeure event will typically occur (e.g. manufacturer, service provider, seller) or the side of the customer. It is typically the first group that wishes to provide for a force majeure clause.
A manufacturer would expand the scope of force majeure and increase its flexibility to remedy a force majeure event, including its consequences. The manufacturer, service provider or seller will tie in subjective elements, such as a strike by its own employees, interruptions in its supply-chain (including delays in delivery of raw materials), transportation difficulties, industrial disputes and other developments influencing any part of the supply chain, as well as circumstances that may be avoidable, such as the breakdown of equipment or any machinery. On the other hand, the customer will go for highly exceptional examples, which are objective, ‘completely’ unforeseeable and generally out of the control or manageability of the other party.
The above considerations imply that including a force majeure clause would be more appropriate in contracts governed by French law and furthermore depends on the position of the contract drafting party. A manufacturer, service provider or seller will likely include a provision as follows:
Notification of Force Majeure. A Party prevented from fulfilling its obligations duly and timely because of an event of Force Majeure shall inform the other Party without undue delay and make reasonable efforts to terminate the Force Majeure as soon as practicable. The Parties shall consult with each other in order to minimise all damages, costs and possible other negative effects.
For the purpose of this Section, Force Majeure means any and all circumstances beyond the reasonable control of the Party concerned, including acts of God, earthquake, flood, storm, lightning, fire, explosion, war, terrorism, riot, civil disturbance, sabotage, strike, lockout, slowdown, labour disturbances, accident, epidemic, difficulties in obtaining required raw materials or labour, lack of or failing transportation, breakdown of plant or essential machinery, emergency repair or maintenance work, breakdown of public utilities, changes of law, statutes, regulations or any other legislative measures, acts of governments, supranational organisations or other administrative or public agencies, orders or decrees of any court, acts of third parties, delay in delivery or defects in goods or materials supplied by suppliers or subcontractors or an inability to obtain or retain necessary authorisations, permits, easements or rights of ways.
Effects. The Party prevented from fulfilling its obligations shall not be required to remove any cause of Force Majeure or to replace or provide any alternative to the affected source of supply or the affected facility if that would require additional expenses or a departure from its normal practices, or to make up for any quantities not supplied. If an event of Force Majeure has occurred, the Party prevented from fulfilling its obligations is entitled to allocate, in a manner it considers reasonable, the available quantities of Products amongst its customers and its own requirement.
Obviously, the customer will seek a different type of wording:
Notification of Force Majeure. A Party prevented from fulfilling its obligations duly and timely because of an event of Force Majeure shall promptly inform the other Party specifying the cause of Force Majeure and how it may affect its performance, including a good faith best estimate of the likely scope and duration of interference with its obligations, and shall make best efforts to terminate or avoid the Force Majeure circumstances as soon as practicable. The Parties shall consult with each other in order to minimise all damages, costs and possible other negative effects.
For the purpose of this Section, Force Majeure means unforeseeable and unavoidable circumstances entirely beyond the control of the Party concerned, such as acts of God and wars.Effects. The Party other than the Party prevented by a Force Majeure event shall be released from performing any of its obligations for the duration of the Force Majeure event. Furthermore, if an event of Force Majeure continues for more than 60 days, such latter Party shall be entitled to terminate this Agreement or any purchase order or part of a purchase order, with immediate effect and without liability to the Party prevented by the Force Majeure. Upon remediation of the Force Majeure event, the Party prevented by the Force Majeure shall promptly resume performance on all purchase orders of the other Party (which have not been terminated).
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Force majeure clauses. The middle ground is somewhere in between. An event of force majeure should be reasonably unforeseeable, out of the debtor’s control and reasonably unavoidable. Once an event of force majeure has occurred, whether contractually excusable or not, it is often possible to solve its consequences or at least to establish an appropriate way forward.
In such circumstances, it may well be important for the customer to receive all relevant information promptly and probably also to be involved in choosing the remedies. In view of the consequences and entitlement to stay involved, even a buyer or contractor may prefer to widen the scope of the force majeure situations and get an informed, preferred customer position.
Legal context of force majeure. An area of the law that divides the European legal traditions is visible in the concept of force majeure. In short, the background of this division goes back to the legalistic era of the late 19th century. At the time, the French Cour de cassation (French ‘supreme court’) established the overriding principle that contractual provisions are recognised as a strong force of law. Unless the parties provided for exceptions in the case of hardship or force majeure, the principle ‘contract is contract’ or ‘a contract serves as the law between the contracting parties’ (pacta sunt servanda) prevails.
In the Germanic legal tradition, such provision is not a must-have. As explained in connection with contract interpretation and legal cultures this is because the court will take an objective (more reasonable) approach as regards the question of whether a party is excused from performance given the occurrence of exceptional circumstances. Still, also in Germanic traditions, ‘contract is contract’.