The force majeure clause is like a Monopoly “get out of jail free” card in the sense that a nonperforming party is permitted a legal excuse, based on the occurrence of a catastrophic event, to breach a contract without suffering the consequences of nonperformance.  A typical force majeure clause legally excuses or suspends a party’s obligation to perform when a specified event occurs.

Because one party may be more vulnerable to the consequences of certain events occurring, the force majeure terms should not be overlooked.  Generally, force majeure clauses are set up in either of two formats.  The first format enumerates a list that includes all of the events that could plausibly excuse performance.  If you have adopted this format, be sure to occasionally update your list as current events may not be covered.   Take the outbreak of the swine flu as an example: have you revised your force majeure clause to shield a party from nonperformance resulting from the outbreak or threatened outbreak?

Additionally, if you enumerate your force majeure events, be careful if ending your force majeure provisions with the terms “…and other similar causes.”  Courts may construe this catch-all provision narrowly to comprise only causes of the same sort as the previous matters mentioned.  You should buttress the catch-all provision with the additional phrase “…and other similar causes which are beyond the control of the parties.” to allow some flexibility in excusing unforeseeable events.

The second format used in force majeure provisions is a definitional approach in which the parties set the criteria to determine when the occurrence of an event will excuse performance.  Lawyers prefer this format as it is subject to finite interpretation.  If you desire certainty, the first format may be more amenable to your purposes.  However, if you prefer the flexibility of this second format, make sure your force majeure provision incorporates both foreseeable and unforeseeable events.  Courts have been known to find that if an event was foreseeable, the parties should have protected themselves during negotiations, and in the failure to do so, the burden remains with the nonperforming party.

A hybrid of both these formats may be used in constructing your force majeure provision.  In the following excerpt from NRECA’s  hotel contract template, the force majeure provision reads:

Force Majeure.  The performance of this Agreement in whole or part by either party is subject to acts of God, war, or similar hostilities, actual, threatened or suspected terrorist activity, government regulation, disease, World Health Organization travel advisory, disaster, fire, strikes, threat of strikes, lockouts or labor disputes (except strikes, threat of strikes, lockouts or labor disputes involving the party attempting to invoke this provision), civil disorder, curtailment of transportation facilities unreasonably delaying at least twenty-five (25%) of Attendees from attending, or similar or dissimilar causes beyond the control of the parties making it inadvisable, commercially impractical, illegal, or impossible to hold the Meeting or which materially affects a party’s ability to perform under this Agreement. 

Notice that this provision includes the first format by creating a list of specific events which could excuse performance; however, this list is by no means exhaustive.  It functions like the second format to allow the nonperforming party the flexibility to plan for unforeseeable events by establishing the conditions that would justify an excuse. 

Regardless of your format preferences, make sure the nonperforming parties obligations are outlined within the force majeure provision.  Remember that fairness is the basis for the force majeure provision; therefore, fairness should govern the duration and terms of a parties’ ability to suspend and continue to suspend performance.   As the performing party in any force majeure scenario, you would like some assurance that the other party is acting in good faith and in a commercially responsible manner.  To protect the performing party and the integrity of the contract, the nonperforming party should be required to give notice of their inability to perform within a certain time frame from becoming aware of the event.  Requirements should further compel the nonperforming party to provide a written statement that asserts their expected delay and explains how the nonperforming party will mitigate or limit damages to the performing party.    

The force majeure provision is a powerful risk-shifting mechanism because it has the effect of allocating risk from one party to another based on the occurrence of an event.  Review your force majeure provision today to ensure that you have protected your company from the occurrence of catastrophic events which would prevent your performance and that your company has not absorbed too much of the risk that these catastrophic events will occur.