[See also this post dated August 24, 2013, and this post dated August 20, 2013, which offers a new version.]
[Updated January 3, 2012, to make the definition of “Force Majeure Event” read better; further updated January 9, 2012, to revise, experimentally, my proposed definition of “Force Majeure Event” to address the issue raised in the first paragraph of this comment by reader Vance Koven.]
I find the standard definition of force majeure a little silly. You know what such definitions look like:
“Force Majeure Event” means any cause(s) which render(s) a Party wholly or partly unable to perform its obligations under this Agreement (other than obligations to make payments when due), and which are neither reasonably within the control of such Party nor the result of the fault or negligence of such Party, and which occur despite all reasonable attempts to avoid, mitigate or remedy, and shall include acts of God, war, riots, civil insurrections, cyclones, hurricanes, floods, fires, explosions, earthquakes, lightning, storms, chemical contamination, epidemics or plagues, acts or campaigns of terrorism or sabotage, blockades, embargoes, accidents or interruptions to transportation, trade restrictions, acts of any Governmental Authority after the date of this Agreement, strikes and other labor difficulties, and other events or circumstances beyond the reasonable control of such Party.
They result in a kind of arms race, with drafters throwing in ever more scenarios. Cumulatively, they evoke someone’s fevered vision of the apocalypse. I half expect to see, one of these days, “the Rapture” added as an element.
Because this sort of definition is an enlarging definition, using including (see MSCD 5.19), I prefer not to add endless examples. I leave the broader provision unencumbered and instead focus on what, if anything, I want excluded from the definition. I think that affords greater certainty and addresses better the concerns of whichever party won’t be invoking the provision.
Here’s an example of a force majeure provision that I used in a recent draft. I’m not suggesting that it’s perfect, but it will give you an idea of my approach:
5.10 Force Majeure. (a) If a Force Majeure Event occurs, the party that is prevented by that Force Majeure Event from performing any one or more obligations under this agreement (the “Nonperforming Party”) will be excused from performing those obligations, on condition that it complies with its obligations under section 5.10(c).
(b) For purposes of this agreement, “Force Majeure Event” means, with respect to a party, any event or circumstance, regardless of whether it was foreseeable, that was not caused by that party and that prevents a party from complying with any of its obligations under this agreement [(other than an obligation to pay money)], on condition that that party that uses reasonable efforts to do so, except that a Force Majeure Event will not include [any a strike or other labor unrest that affects only one party, an increase in prices, or a change of law].
(c) Upon occurrence of a Force Majeure Event, the Nonperforming Party shall promptly notify the other party of occurrence of that Force Majeure Event, its effect on performance, and how long that party expects it to last. Thereafter the Nonperforming Party shall update that information as reasonably necessary. During a Force Majeure Event, the Nonperforming Party shall use reasonable efforts to limit damages to the Performing Party and to resume its performance under this agreement.
Although the defined term is Force Majeure Event, I define it as “any event or circumstance.” That serves to acknowledge that you can have some situations that consist of an event and its aftermath (meteor strike!) and others that consist of an ongoing circumstance (bubonic plague!). This definition covers both, allowing you to avoid the clunky construct continuation of a Force Majeure Event.
A broader question is whether a force majeure provision is appropriate in a given transaction. They started life in contracts relating to big construction projects and the like, particularly in international contexts, but migrated to contracts for transactions that are less prone to such disruptions. Do you think that force majeure provisions are overused?
[Update: Reader Fitz suggests giving the non-affected party the right to terminate if the force majeure event continues for more than a reasonable time. If the contract term is long enough, that would be appropriate.]
Interesting post. I definitely agree that the litany of catastrophes is not the best approach, but I wonder if giving a performing party a potential out when anything at all (subject to the specific exceptions) prevents their reasonable efforts from succeeding will not always be in the best interests of the party seeking enforcement (I think this would be a great negotiated change for the performing party, however). Perhaps changing “reasonable” to “best”, but it still seems like requiring some heightened level of severity for the Force Majeure events could be beneficial. Although, without thinking more about it, I don’t have a quick suggestion as to how this could be drafted (maybe require the event to be “not reasonably foreseen”?).
Jeffrey: When you’re not imposing a flat obligation, all you can ask a contract party to do is behave reasonably. (In my book MSCD and on my old AdamsDrafting blog you’ll find lots of discussion about why it’s hopeless to rely on “best efforts” to impose a more exacting standard than “reasonable efforts.”) Ken
My only observation would be that in many commercial contracts there is an exclusion of liability for any loss not caused by negligence, fraud or wilful default (or similar). I would suggest that a force majeure clause does little in such a contract, for the obvious reason that a loss caused by earthquake/tempest etc. will not have been caused by a party’s negligence – though if it is (perhaps their disaster recovery precautions were negligently implemented), it is fair that they pay up in any case.
As my contractual world (hedge funds and finance) generally sees such exclusions in its contracts, I rarely come across force majeure. When I do, and the standard exclusion of liability is included, I generally pay little attention except to ensure that the other side hasn’t slipped unwarranted items into the list of force majeure events (lock-outs being the classic example).
Ken:
I’ve always thought it was a mistake to put in the exception for payment of money. Naturally, I put it in if I am the one being paid, but let’s take a real-life force majeure event: the FDIC shuts down your bank on the day that you are due to wire money. But then, the effects I would want in a contract are neither the ones that flow from breach nor the ones that flow from a force majeure clause. The effects that I would expect are:
1. The payee cannot terminate the agreement.
2. The payor must pay as soon as possible.
3. The payor must pay interest on the delayed payment.
I suspect that contracts that are very sensitive to payment delays handles this better than the short exception in a standard force majeure clause in a services agreement, which is where I have usually seen this.
A completely unconnected thought is that many large companies are now incorporating some concept that their service providers have to plan for disaster recovery. There is often a specific disaster recovery provision that goes on at length. And then there is a carve-out in the force majeure clause that effectively says that a force majeure event that would not have caused a delay or failure in performance if the delayed or failing party had complied with the disaster recovery provision is not force majeure.
Chris
I agree with the Fritz’s comment. In an exclusive dealing arrangement such as a requirements contract, I also think it makes sense to give the non-affected party express permission to use an alternative source of goods or services while the affected party’s performance is excused.
Ken, we used your force majeure provision with only a few amendments in a license agreement – the inhouse counsel’s reaction was he thanked us for this improvement of his standard agreements, saying that he really appreciates our creative input. Great thanks for your work!
Frank: That’s great! If you think any of the changes represent improvements as opposed to adjustments to reflect your deal, please let me know. Ken
How you recommend minimizing an adverse impact of “change of law” on contractual obligations of the parties?
I suspect you’ve seen Tina Stark’s book on legal boilerplate? If so, she has a decent definition of force majeure. We use the version below in many of our agreements:
“Force Majeure Event” means any act or event, whether foreseen or unforeseen, that meets all three of the following tests: (a) the act or event prevents a party (the “Non-Performing Party”), in whole or in part, from (i) performing its obligations under this Lease, or (ii) satisfying any conditions to the obligations of the other party (the “Performing Party”) under this Lease; (b) the act or event is beyond the reasonable control of and not the fault of the Non-Performing Party; and (c) the Non-Performing Party has been unable to avoid or overcome the act or event by the exercise of due diligence.
The clause goes on to list examples of a Force Majeure Event (e.g., hurricane, act of God, etc.). There also are explicit terms on what happens if a Force Majeure Event occurs. We used to offer termination as an option, but in a long term lease, especially where we’re tenant, we decided that self-help would be a better remedy if the landlord could not perform.
rcbjr2: Yes, I’m familiar with how the subject is treated in Tina’s book. Unsurprisingly, I think my language represents an improvement. Ken
Ken, I have a concern related to your definition’s utility in my industry. I do long-duration construction contracts, and have to deal with weather (rain, snow, deep freezes, dust storms, etc.). In a multi-year construction scenario, we all know weather is going to impact, and that work is delayed on those days. I don’t want a FM claim every time it rains, and know full well that a contractor will schedule in a certain number of delay days for weather. On your drafting, we’d have to rely on the ‘reasonable attempts to mitigate’ carve out, and I’m not comfortable that would suffice.
Scott
PS. (1) Unlike many industries, we see FM claims regularly, and (2) contrary to what I once thought, most are not for major catastrophic events, but claims for a half day or couple of days.
Understood. How would you adjust my version?
Various drafters use various ways, but what I typically see would include (1) drafting a closed/exclusive list of FM events, rather than an open-ended ‘any event’ provision (2) attempting to carve out ‘normal’ weather and limiting FM to catastrophic or unusual events (3) limiting FM to unforeseeable events.
As a minimum starting point, I personally might add the adjective ‘unusual’ or ‘exceptional’ before ‘event’. It’s not elegant, but is used in some international standard forms, and is at least met with some degree of understanding of intent across the table.
In some locations, we try to get more specific, and prescribe how we deal with (for example) an annual rainy/monsoon/hurricane season – often obtusely and badly, and using obscure statistical references, such as e.g. ‘more severe than 1 in X year probability’ etc.)
Any help/thoughts gratefully appreciated!
I’m not in favor of the “closed list” approach, as that’s what results in a parade of horribles like the one at the top of my post.
And I’d like to be more specific than “unusual.”
It should be possible to be specific about weather events. That’s standard practice for insurance companies.
I haven’t encountered “The Rapture,” but I did once receive a contract that included “intergalactic conflict” among its parade of horribles. Of course I left it in place without comment. It could happen….
Thanks Ken for maintaining this blog and for the MSCD. I refer to both frequently and appreciate your perspective.
That option adds a dash of excitement to a contract …
Ken, how do you feel generally about excluding strikes that only impact the affected party? The logic is of course that purchaser should not be adversely affected by supplier’s labour law issue, which in effect supplier should control. I have sympathy with that view, but also feel that if a supplier suffers a strike, and had a bunch of contracts to which it was exposed to liquidated damages, it is left in a very poor negotiating position with unions, who may know of the liquidated damages issue. I’m inclined to allow strikes suffered by supplier (and not necessarily industry wide), I’ve seen a proviso used that the sufferer is obliged to use various type of endeavours to resolve the strike, but I don’t like it. On balance I think the key weapon for the purchaser is termination if the FM continues, and supplier strikes should be a FM event. Thoughts?
There was a little too much going on here for me, with too many “thats” and “that Party.” I think this might be clearer (with a couple minor changes that meld this into the agreement I am working on):
If a Force Majeure Event occurs, the party that is prevented by that Force Majeure Event from performing any one or more obligations under this Contract (the “Nonperforming Party”) will be excused from performing those obligations, on condition that it complies with its obligations under 6.VIII. “Force Majeure Event” means, with respect to the Nonperforming Party, any event or circumstance, regardless of whether it was foreseeable, which was not caused by the Nonperforming Party, which prevents the Nonperforming Party from complying with any of its obligations under this Contract (other than its obligation to pay money), on condition that the Nonperforming Party uses reasonable efforts to comply with its obligations, except that a Force Majeure Event will not include any a strike or other labor unrest that affects only one party, an increase in prices, or a change of law. Upon the occurrence of a Force Majeure Event, the Nonperforming Party shall promptly notify the other party of the occurrence of that Force Majeure Event, its effect on performance, and how long that party expects the Force Majeure Event to last. Thereafter the Nonperforming Party shall update the other party as reasonably necessary. During a Force Majeure Event, the Nonperforming Party shall use reasonable efforts to limit damages to the other party and to resume its performance under this Contract.
You can have my couple eurocents on your version of FM. First, this part right here needs improvement: “that that party that”. I propose “that the party that”. It’s just too many thats in a row. Second, “to limit damages” – I think it should be “damage” as “damages” is the remedy for damage/loss incurred. Otherwise, it is the most sensible and best structured FM I have read so far.
Hi Valters. Yes, that is clunky, so I’m glad it’s not in my more recent version of FM, in the post linked to at the top, namely https://www.adamsdrafting.com/revisiting-my-force-majeure-language/.