Force majeure – legal impact vs. the business

When you review the law on force majeure and case law about the consequences of an event of force majerue, you will find discussions about foreseeability and excusability. But what business practice needs is a solution to get out of it properly. What you want is getting control over the process. Information or (on the other hand) freedom to resolve it. The interests involved here is what this blog is about.

Considerations regarding the legal context. 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 (´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´ (pacta sunt servanda) prevails. In the Germanic legal tradition, such provision is not a must-have. 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. Such latter approach is also reflected in the Unidroit Principles:

Article 7.1.7 (Force majeure)

(1)  Non-performance by a party is excused if that party proves that the non­performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

(2)  When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract.

(3)  The party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non-­receipt.

(4)  Nothing in this Article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due.

Considerations regarding the business position. 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.

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