In the previous blog post, I addressed the legal impact and the business issues in connection with events of force majeure. In this post, I will reflect both sides’ definition of what a force majeure event entails: the excuse-seeking manufacturer, service provider or other supplier vs. the firm customer seeking enforcement of the contract (no excuses). Furthermore, I will give contractual clauses providing for each side’s solution.
A manufacturer, service provider or supplier 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).
Aspects of 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.