Blaser Mills Law update: Stop saying your prayers: ‘Act of God’ clauses and how to use them
20 February 2020
The following article from MIA member Blaser Mills Law contains some relevant business updates.
Coronavirus, bushfires, and Brexit. Disruptive events like these are called ‘force majeure’ events, or ‘Acts of God’. Other examples may include war, terrorist attacks, natural disasters, government action, computer viruses and strikes. These are unforeseeable events outside of your control, which can delay, hinder or prevent you from fulfilling a contract.
Force majeure clauses
The force majeure clause in a contract is essential, but often overlooked. This clause usually says that a party is not liable if it cannot perform its duties under the contract because of a force majeure event - at least while that event continues. This protects parties from unforeseen risk, and is especially important as most insurance policies will not cover non-performance because of ‘Acts of God’.
Without this clause, failure to perform the contract may put you in breach of contract. The other party might terminate the contract and/or ask you to pay damages as a result. Under English law, where performance of a contract is impossible, the contract will be rescinded (this is called ‘frustration’). However, it is very hard to meet this threshold, and it will result in the contract ending. A force majeure clause allows parties to agree a more practical and commercial solution, such as suspending or delaying performance rather than ending the contract.
Tailoring your force majeure
Each force majeure clause should be carefully tailored to each specific contract, as industries have different commercial realities and pressures, and parties have different needs. The exact effect of the clause will depend on its precise wording:
There is no set legal meaning of what events qualify as a force majeure event, so this will depend on what parties choose to include in the contract. The events included should capture each party’s industry-specific risks, and individuals may also wish to specifically exclude events, such as one party’s lack of funds. Depending on the drafting of the contract, events like Brexit – or the end of the transition period on 31 December – may or may not be a force majeure event.
The clause could relate to events outside party A’s control only, or outside both parties’ control. The clause could also relate to an event that is outside a party’s reasonable control, meaning the party could have done something to prevent the force majeure event from occurring, however, it would have been unreasonable to expect them to do so.
• Delay, hinder or prevent?
The clause might only cover where a duty becomes impossible to fulfil, or may include where performance is only delayed or hindered. Parties may choose to agree that being ‘hindered’ includes where performance is possible but inadvisable, illegal, or commercially impractical.
The clause will state whether or not the force majeure event must be the sole and/or direct cause of a party’s inability to perform their duties.
These clauses should be carefully drafted and specific to your business. If you have no force majeure clause or it doesn’t quite do the job, act now. You may need to discuss a contractual amendment to mitigate losses on both sides further down the line.
The force majeure is an extremely important clause that requires careful consideration and expert advice. The recent global examples are a reminder for us all to expect the unexpected – and more importantly, to provide for it in our contracts.
If you found this article helpful, you may also wish to read the following article on ‘Preparing your contracts for Brexit’
How Blaser Mills Law can help:
This article provides some simple guidance on Force majeure clauses, however, every contract is different and it is important you take independent legal advice when drafting or amending a contract.
If you would like further, in-depth guidance on Force majeure clauses, or any other issue related to commercial contracts, please contact one of Blaser Mills Law corporate commercial law specialists on 01494 478621 or at firstname.lastname@example.org.
Read the full article here.