A reader introduced me to a recent opinion of the Texas Court of Appeals in TEC Olmos, LLC v. ConocoPhillips Co., No. 01-16-00579-CV, 2018 WL 2437449, (Tex. App. 31 May 2018) (PDF here). It raises an interesting issue relating to force majeure provisions, one that has featured in other opinions.
Rather than summarize the facts and the proceedings, I’ll cut to the chase. The force majeure provision at issue stated some events that would constitute force majeure events (“by reason of fire, flood, storm, act of God, governmental authority, labor disputes, war”). That was followed by a catch-all (“or any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected”). The issue before the court was whether to fall under the catch-all element of a force majeure provision an event has to be unforeseeable, or whether it can be foreseeable. (In this case the court deemed the event in question—a fluctuation in the oil and gas market that affects a party’s ability to obtain financing—to be foreseeable.)
Here’s what the court said (citations omitted):
We agree that when parties specify certain force majeure events, there is no need to show that the occurrence of such an event was unforeseeable. …
Such is not the case here, and those cases do not control the outcome of this case. An inability to obtain financing because of a downturn in the oil and gas industry is not listed as a force majeure event in the contract. The question thus, is whether it is included in the “catch-all” provision. To require a showing of unforeseeability for a “catch-all” provision, such as the one here, is consistent with the cases Olmos cited.
…
[W]hen, as here, the alleged force majeure event is not specifically listed—i.e., the party did not protect itself through an explicit provision—and the alleged force majeure event is alleged to fall within the general terms of the catch-all provision, it is unclear whether a party has contemplated and voluntarily assumed the risk. Thus, we find it appropriate to apply common-law notions of force majeure, including unforeseeability, to “fill the gaps” in the force majeure clause. Because fluctuations in the oil and gas market are foreseeable as a matter of law, it cannot be considered a force majeure event unless specifically listed as such in the contract.
To dispense with the unforeseeability requirement in the context of a general “catch-all” provision would, in our opinion, render the clause meaningless because any event outside the control of the nonperforming party could excuse performance, even if it were an event that the parties were aware of and took into consideration in drafting the contract. …
Because there is no specific provision in the force majeure clause making a downturn in the oil and gas market a force majeure event, and a “catch-all” provision generally requires a showing of unforeseeability, which Olmos did not and cannot make, we hold that the trial court did not err in concluding, as a matter of law, that Olmos’s failure to perform was not excused by the force majeure clause of the contract.
So if an event is specified in a force majeure provision, it doesn’t have to be unforeseeable. But to fall within the catch-all element of a force-majeure provision, an event does have to be unforeseeable. What does that mean for drafters?
Well, if unforeseeability applies only to the catch-all element, I, the drafter, am going to list in force majeure provisions pretty much everything I can think of, so courts that follow this approach won’t apply an unforeseeability standard to those events. (If a court doesn’t follow this approach, you won’t be any worse off for having specified a bunch of risks: the court would just say anything has to be unforeseeable to fall within the scope of the force majeure provision.)
Taking an everything-and-the-kitchen-sink approach to listing specific kinds of risk might seem silly, but in fact it makes a kind of sense. Everything can seem foreseeable if you have a broad enough frame of reference. Is it foreseeable that this train is going to crash? Perhaps not, but it is foreseeable that at some point somewhere a train will crash, and it’s just a matter of odds whether it’s this one. And is a hurricane foreseeable or unforeseeable? How you answer depends on your perspective. I’d rather not have that kind of fight, so bring on the half-page definition of Force Majeure Event.
But it would be a pain in the neck to have to wrangle endless references to tidal waves, insurrection, space debris, and so on. I much prefer the approach reflected in my force majeure provision (here), which sidesteps all that by including in the definition of Force Majeure Event “any event or circumstance, whether or not foreseeable”.
With my provision, you have just two decisions to make. First, do you want to include a force majeure provision? Force majeure provisions originated in contracts for infrastructure projects, but by process of osmosis they’ve migrated pretty much everywhere. (For example, for a consulting client I’m working on a contract for financial services; the template that is my starting point contains a force majeure provision.) It’s hard to object on principle to this expanded use of force majeure: an earthquake that disrupts tunnel building can also mess with financial transactions. But you could decide to forego entirely the reallocation of risk inherent in force majeure provisions.
And second, even if you do decide to include a force majeure provision, you could carve out some kinds of risk as being qualitatively different. My force majeure provision offers as optional carve-outs “a strike or other labor unrest that affects only that party, an increase in prices or other change in general economic conditions, a Change in Law, or an event or circumstance that results in that party’s not having sufficient funds to comply with an obligation to pay money.” The possibility of eliminating some kinds of risk more than offsets not requiring that a risk be unforeseeable to fall within a force majeure provision.
Oh, and another bonus of ridding force majeure provisions of a parade of horribles is that you eliminate the prospect of an ejusdem generis problem, where a court says, for example, that you included only terrestrial events so your force majeure provision doesn’t cover a meteorite.
Are you with me?
(Bonus: Today’s choice of pulpy force majeure movie is … San Andreas, starring Dwayne Johnson!)
Ken:
It’s not exactly responsive to your question, but my gut on the case is that the court should only have addressed foreseeability as an element of whether something was under the party’s reasonable control. Obviously it is harder to reasonably control something that it unforeseen and much harder if it is also unforeseeable. But it isn’t impossible, especially if you think at multiple levels of granularity. Sure that fire in the data center was unforeseeable. But the possibility of physical damage to the data center isn’t, so I ought to have plans that kick in if the data center is destroyed, like a backup center and insurance. Reasonableness is a good way of handling that sliding scale of granularity. Foreseeability feels a bit more binary.
Chris
I am with you.
“Foreseeable” is a good word to avoid in a contract, for many reasons. Here are two.
1/ It’s undefined. Is “reasonably foreseeable” redundant or does it describe a set events different from the set of events that are foreseeable, but not reasonably so?
2/ It’s passive in meaning, omitting the by-agent. If a meteorologist foresaw the storm but told no one, was the storm foreseeable? How can an event actually foreseen be unforeseeable?
“Under the party’s reasonable control” has all the upsides and downsides of “reasonable efforts,” such as the need for monetary caps. A party can’t control the weather, but it can move boats onto land so they won’t sink. At what price does harm-avoidance become so expensive that the harm-causing event may be deemed beyond the risk-bearing party’s reasonable control?
Non-quantitative terms like “efforts”, “foreseeable”, and “reasonable” are “black boxes” that hand dispute resolution over to a court if the parties can’t agree. For that reason, a drafter should prefer quantitative to conceptual terms when it (a) is possible and (b) matters.
Monetary caps don’t solve the problem of uncertainty, but they limit the risk. They, too, have a downside: they tend to become floors. If a party need not spend more than a million dollars to avoid a specific harm, and the party spends half a million to avoid the harm, but the harm occurs nevertheless, the risk-bearing party can argue that it would have been unreasonable to spend more under the circumstances.
That’s a perfectly reasonable argument, but it’s hard to make it stick if it’s certain or even merely probable that spending more would have averted the harm. So the cap has a tendency also to become a floor.
The other side shouldn’t accept a long force majeure provision. This has come up in employment contracts, where one-sided force majeure provisions have been abused by the employer, and the courts have often read them against the employer and thrown them out.