Force Majeure and the Law
Term “FORCE MAJEURE” refers to an irresistible force or an unforeseen event beyond the control of a party, making it materially impossible to fulfill a contractual obligation. It maybe an overpowering force by itself, which prevents fulfillment of a contract and does not allow it to be performed the way it was envisaged to be performed, with its consequences unpreventable. Indian Supreme Court has held that “An analysis of ruling on the subject shows that reference to the expression is made where the intention is to save the defaulting party from consequences of anything over which he had no control”. It is not an act of one party or the other. It is a happening over which neither party had any control. From the moment of its happening the contract ceases to exist. But what is a Force Majeure event or circumstance is always debatable. Consequences of the event must have been unpreventable. Hurricanes and earthquakes are candidates for Force Majeure unless predicted. But they may not imply damage or disruption by their very occurrence. Also all obligations and liabilities which arose before the moment of Force Majeure have to be honored.
Under Public international law it refers to an irresistible force or unforeseen event beyond the control of a State making it materially impossible to fulfill an international obligation. It may refer to an event, either external or internal, that happens to a vessel or aircraft that allows it to enter normally restricted areas without penalty. Example was the U.S. Navy aircraft that landed at a Chinese military airbase after colliding with a Chinese fighter in April 2001. Under this principle, the aircraft had to be allowed to land without interference.
Force majeure clause, is a common clause in contracts as it essentially frees both parties from liability or obligation when an extraordinary circumstance or event happens which is not only beyond their control but also which could not have been envisaged at the time of entering into that contract. This includes war, strike, riot, crime, or an “act of God,” such as flooding, volcanic eruption etc. It may work to excuse all or part of the obligations of one or both parties. But it does not excuse negligence, misfeasance or malfeasance of a party when intervening circumstances could have been contemplated. Furthermore and for example, a strike might prevent timely delivery of goods, but not timely payment for the portion delivered.
Similarly, if the contract has provision of backup power or other contingency plans for continuity, a widespread power outage would not be force majeure because it only relieves a party from an obligation under the contract from the moment of occurrence of Force Majeure, which is actually an Impossibility or Impracticability defense due to an overpowering force, which prevents the fulfillment of a contract.
The expression bears more extensive meaning than “act of God.” Delay due to breakdown of machinery is within the words “force majeure“, which certainly cover accidents to machinery. Judges have agreed that strikes and breakdown of machinery are included in force majeure. The term cannot, however, be extended to cover bad weather, football matches, or a funeral. Matsoukis v. Priestman & Co (1915) 1 KB 681.
A Party invoking force majeure must have had nothing to do with its happening. If the event could be foreseen, he must have prepared for it. It does not include a reasonable fear or apprehension of such a restraint. In Hackney Borough Council v. Dore (1922) 1 KB 431 it was held that “The expression means physical or material restraint and does not include a reasonable fear or apprehension of such a restraint”.
Throughout French law, Force majeure causes relief from responsibility. For a defendant to invoke force majeure in French law, the event proposed as force majeure must pass some tests. The defendant must have had nothing to do with its happening. If the event could be foreseen, the defendant is obligated to have prepared for it. Being unprepared for a foreseeable event leaves the defendant culpable. This standard is very strictly applied. In 1962, a court adjudged in France that since a flood had occurred 69 years before that which caused the damage at issue, the latter flood was predictable. Similarly in 1974 it was adjudged that an avalanche was predictable since it had an antecedent of half a century past. Other events that are candidates for force majeure in French law are hurricanes, earthquakes, Strike, riot, crime, or an event described by the legal term “act of God” such as flooding or volcanic eruption, that prevent one or both parties from fulfilling their obligations under the contract. But it does not include negligence or other malfeasance of a party or where the intervening circumstances could have been or are specifically contemplated.
Time-critical and other sensitive contracts may be drafted to limit the shield of this clause where a party does not take reasonable steps or specific precautions to prevent or limit effects of outside interference, either when they become likely or when they actually occur.
Importance of force majeure clause in a contract, particularly one of any length in time, cannot be overstated as it relieves a party from an obligation under the contract (or suspends that obligation). What is permitted to be a force majeure event or circumstance can be the source of much controversy in the negotiation of a contract. A party should generally resist any attempt by the other party to include something that should, fundamentally, be at the risk of that other party. Outcome of negotiations, depend on relative bargaining power of the parties. There will be cases where force majeure clauses can be invoked by a party effectively to escape liability for bad performance.
Force Majeure in areas prone to natural disaster requires a definition of the magnitude of the event for which Force Majeure could be considered as such in a contract. As an example in a highly seismic area a technical definition of the amplitude of motion at the site could be established on the contract base for example on probability of occurrence studies. Such parameters can later be monitored at the construction site with a commonly agreed procedure. An earthquake could be a small shaking or damaging event. But its occurrence does not imply by itself, the occurrence of damage or disruption. For small and moderate events it is reasonable to establish requirements for the contract processes. For large events it is not always feasible or economical to do so. Concepts such as ‘damaging earthquake’ in force majeure clauses do not help to clarify disruption, especially in areas where there are no other reference structures or most structures are not seismically safe.
Under the Wording of a typical Force Majeure clause, a party is not liable for failure to perform its obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service. No party is entitled to terminate the agreement in such circumstances. If a party asserts Force Majeure as an excuse for failure to perform its obligation, then the nonperforming party must prove that it took reasonable steps to minimize delay or damages caused. Also that it substantially fulfilled all non-excused obligations, and that the other party was timely notified of the likelihood or actual occurrence of such an event.
Capt. A K Bansal,
L.L.B. (Hons) London,
Master Mariner, Bar at Law