When you enter a contract, you always intend for everything to go according to plan. However, things don’t always work out that way. This is why it’s important to account for unforeseen events in your contracts. The term ‘Force Majeure’ refers to a specific clause in a contract which accounts for this. French for ‘major force’, it alludes to an event beyond any person’s control that can hinder the performance of a contract. The clause specifically protects contracting parties in the case that such an event does happen. Read on to find out what force majeure clauses are and how they can help protect your business.Â
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What is the purpose of a Force Majeure clause?
A Force Majeure clause consolidates an agreement between contracting parties when an unforeseen event prevents a party from performing a contractual duty. An event like this may cause a party to breach a contract or cause the contract to become ‘frustrated’. As such, the clause protects parties in contractual obligations. The parties agree to the clause that states what procedure will take place if an unforeseen event occurs during the contract term. Common examples of unforeseen events include war, fires, riots, forced business closures, pandemics, hurricanes and typhoons etc.
The clause is often drafted with the following elements, however, these may vary:
- A non-exhaustive list of what an unforeseen event is. This can include a natural disaster, pandemic, war amongst other events.
- What steps to follow when an unforeseen event occurs
- Who can suspend performance
- Circumstances of contractual obligations after the event
- How the contract will resume once both parties can fulfil their obligations again
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What’s the difference between Force Majeure and frustration?
Similarly, frustration in contract refers to the situation where an unforeseen event affects both parties’ ability to fulfil a contractual obligation. However, frustration causes a contract to become invalid once the unforeseen event occurs. A Force Majeure clause prevents frustration of contract from occurring by setting out an agreement to continue contractual obligations after the unforeseen event.
Is a Force Majeure clause necessary for every contract?
Force Majeure clauses often occur in contract of services to ensure timeframes and service deliveries are met. They can also occur in contractor agreements and lease agreements. As such, there a plenty of applications where the clause may be necessary.
Potential issues
Issues can arise if your contracting with an overseas-based business. This is because different jurisdictions administer force majeure in different ways. In Australia, force majeure varies from contract to contract. In some other legal systems, it is a principal applied across the board. To make sure you’re covered, you should include this clause in any contracts you enter outside of Australia. If you’re concerned about forming a Force Majeure clause in a contract, consider speaking to a contract lawyer.
