4/9/23, 11:24 PM What Is a Force Majeure Contract Clause, and How Does It Work?

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BUSINESS BUSINESS JARGON

What Is a Force Majeure Contract Clause,

and How Does It Work?
By MARSHALL HARGRAVE Updated July 23, 2022

Reviewed by KHADIJA KHARTIT

Fact checked by SUZANNE KVILHAUG

Investopedia / Nez Riaz

What Is Force Majeure?

Force majeure is a clause that is included in contracts to remove liability for
unforeseeable and unavoidable catastrophes that interrupt the expected
course of events and prevent participants from fulfilling obligations. These
clauses generally cover natural disasters, such as hurricanes, tornadoes, and
earthquakes, as well as human actions, such as armed conflict and man-made
diseases.

KEY TAKEAWAYS
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4/9/23, 11:24 PM What Is a Force Majeure Contract Clause, and How Does It Work?

Force majeure is a clause that is included in contracts to remove

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liability for unforeseeable and unavoidable catastrophes that interrupt
the expected course of events and prevent participants from fulfilling
obligations.
These clauses generally cover both natural disasters and catastrophes
created by humans.
In some jurisdictions, there are three tests to determine whether a
force majeure defense is applicable: The event must be unforeseeable,
external, and irresistible.
Questions about what is and is not foreseeable in a legal sense have
been raised given the increased awareness of pandemics, asteroids,
supervolcanoes, cyber threats, and nuclear warfare. 
Force majeure conflicts with the concept of “pacta sunt servanda,” a
principle in international law that agreements must be kept and not
wriggled out of.

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Force Majeure

Understanding Force Majeure

Force majeure is a French term that literally means “greater force.” It is related
to the concept of an act of God, an event for which no party can be held
accountable, such as a hurricane or a tornado. However, force majeure also
encompasses human actions, such as armed conflict.

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Generally speaking, for events to constitute force majeure, they must be

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unforeseeable, external to the parties of the contract, and unavoidable. These
concepts are defined and applied differently depending on the jurisdiction.

N
The concept of force majeure originated in French civil law and is an accepted
standard in many jurisdictions that derive their legal systems from the
Napoleonic Code. In common law systems, such as those of the United States
and the United Kingdom, force majeure clauses are acceptable but must be
more explicit about the events that would trigger the clause. [1]

Important: Force majeure is a contract clause that removes liability

for catastrophic events, such as natural disasters and warfare.

Force Majeure vs. Pacta Sunt Servanda

In general, force majeure conflicts with the concept of “pacta sunt servanda”
(Latin for “agreements must be kept”), a key concept in civil and international
law with analogs in common law. [2] It is not supposed to be easy to escape
contractual liability, and proving that events were unforeseeable, for example,
is difficult by design.

As time goes on, the world is becoming aware of natural threats that we were
previously ignorant of, such as solar flares, asteroids, pandemics, and
supervolcanoes. We are also developing new human threats, such as cyber,
nuclear, and biological warfare capabilities. These have raised questions about
what is and is not foreseeable in a legal sense.

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We are also becoming increasingly aware of human agency in events that have
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generally been considered external or acts of God, such as climatic and seismic
events. Ongoing litigation is exploring questions of whether drilling and
construction projects contributed to the very natural disasters that rendered
them unworkable. In short, the concepts that underpin force majeure are
shifting.

Example of Force Majeure

An avalanche destroys a supplier’s factory in the French Alps, causing long
shipment delays and leading the client to sue for damages. The supplier might
employ a force majeure defense, arguing that the avalanche was an
unforeseeable, external, and unavoidable event—the three tests applied by
French law. [3]

Unless the contract specifically named an avalanche as removing the supplier’s

liability, the court may well decide that the supplier owes damages. French
courts have deemed an event foreseeable because a similar event had occurred
half a century before. Similarly, a war in a conflict-ridden zone might not be
unforeseeable, nor might capital controls in a struggling economy or a flood in
a frequently affected area.

Warning: If a natural or other disaster happened in a place before,

even many years ago, a repeat occurrence may not be considered
unforeseeable.

Special Considerations for Force Majeure

The International Chamber of Commerce has attempted to clarify the meaning
of force majeure (although it is not included in the organization’s Incoterms​) by
applying a standard of “impracticability,” meaning that it would be
unreasonably burdensome and expensive, if not impossible, to carry out the
terms of the contract. [4]

The event that brings this situation about must be external to both parties,
unforeseeable, and unavoidable. However, it can be very difficult to prove these
conditions, and most force majeure defenses fail in international tribunals.

In any jurisdiction, contracts containing specific definitions that constitute force

majeure—ideally ones that respond to local threats—hold up better under
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scrutiny. Even in systems based on civil law, the application of the concept can
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be strictly limited.

Is COVID-19 considered force majeure?

If COVID-19 made it impossible for a party to perform its contractual
obligations, then, yes, it could qualify as force majeure. Emphasis should be put
on the word “impossible” here. Should the party be able to perform its
obligation, it would not constitute force majeure, regardless of how much more
difficult or expensive honoring this commitment became in a COVID-19
environment.

It’s also worth noting that COVID-19 is not necessarily an unforeseeable event
any longer. Several years have passed since the outbreak was first reported, and
measures have been put in place to prevent the virus from spreading.
Contracting parties will be expected to do everything in their power to mitigate
the effects of COVID-19. It’s also possible that contracts signed after the
beginning of 2020 with force majeure clauses will stress that the COVID-19
pandemic does not apply.

What are the three elements of force majeure?

In general, for an event to trigger a force majeure clause, it must be
unforeseeable, external to the parties of the contract, and serious enough that
it renders it impossible for the party to perform its contractual obligations.

What are examples of force majeure?

Events that could potentially trigger a force majeure clause include war,
terrorist attacks, and a pandemic, or natural disasters that fall under the “act of
God” category, such as a flood, earthquake, or hurricane.

The Bottom Line

In theory, force majeure clauses make a lot of sense. For one, they enable
parties to better manage risk and protect themselves if something unthinkable
happens completely out of the blue.

The biggest issue is that these clauses, by virtue of not always being 100% clear
and transparent, generally favor the big guys. Big, powerful insurance firms can
use these clauses as an excuse to wriggle out of their obligations. Conversely, if
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an average Joe stands to benefit from a force majeure exception, they might not
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have the financial muscle to prove that the event in question qualifies.
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ARTICLE SOURCES

Related Terms
Vis Major
"Vis major" is a Latin term meaning superior force, describing an irresistible natural
occurrence neither caused by nor preventable by humans. more

What Is an Act of God? With Examples, Insurance Coverage

An act of God is a phrase used to describe an event outside of human control, such as a
natural disaster. more

Consequential Loss: Definition, Insurance, Vs. Direct Loss

A consequential loss is an insurance term for an income hit caused by a business's
inability to use damaged property or equipment as usual. more

What Is a Covenant? Definition, Meaning, Types, and

Examples
A covenant is a commitment in a bond or other formal debt agreement that certain
activities will or will not be undertaken. more

What Does Duty of Care Mean in Business and Financial

Services?
Duty of care is a fiduciary responsibility that requires company directors to make
decisions in good faith and in a reasonably prudent manner. more

What Are Contingencies and Contingency Plans? With

Examples
A contingency is a potential negative event that may occur in the future, such as a natural
disaster, fraudulent activity or a terrorist attack. more

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