Due to the uncertainty brought on by the COVID-19 outbreak, businesses in India and throughout the world are unable to fulfil their contractual performances. Oil refineries and the airports in Delhi and Mumbai in India have cited the “Force Majeure” provision and are asking the Airport Authority of India to waive their due payments as a result of citing the pandemic. Similarly, CREDAI, the leading organisation of real estate developers, is attempting to invoke the “Force Majeure” clause of the construction contracts it has executed in order to avoid penalties which shall be levied on any delays in project completion. The “Force Majeure” clause was also used by the Indian customs ports to permit the clearance of goods at ports.
Definition Of Force Majeure Clause
The clause known as “force majeure” is incorporated into contracts to release parties from liability in the event of unavoidable catastrophes that disrupt the expected course of events and prevent the parties from upholding their obligations. These clauses usually cover human diseases and wars, as well as natural calamities.
What Is The Importance Of Force Majeure Clause?
Contracts for supplies, distribution, real estate, and financing, among others, frequently contain “Force Majeure” clauses. You might not be able to fulfil your promises or obligations in the event of an unforeseeable circumstance like the spread of COVID-19 and a corporate lockout. You also lack the financial means to cover the contract’s damages for non-performance. To safeguard your commercial interests and the contract under such circumstances, you can apply the “Force Majeure” clause. If you have legal representation, you can keep the contract and get a temporary reprieve from fulfilling your commitments. Some advice to help you:
- If you’ve signed long-term contracts, you can try to renegotiate the terms of the agreement for the affected period, such as the next six months. This will aid in safeguarding your contractual and commercial interests.
- When there is a supply or distribution agreement, you can increase your supply of goods (or services) as demand increases to make up for any non-performance.
- Make sure that none of you is looking for alternative business deals during a crisis while entangled in legal issues that may have a negative impact on the company.
What Are Examples Of Force Majeure Clause?
A “force majeure” clause is a contractual provision that excuses parties from performance of their obligations when certain events occur beyond their control. Below listed are some examples of situations that may need force majeure clauses:
- Planning an event or concert: A force majeure clause might be included in contracts for events and concerts in case of unpredictable incidents like natural calamities, and human activities, that could make the event impossible or uncertain to carry out.
- Catering a wedding reception: A force majeure clause may be included in catering contracts for wedding receptions in case of unforeseeable events, such as extreme weather or a sudden outbreak of a contagious disease, that could prevent the caterer from fulfilling their obligations.
- Private photography sessions: A force majeure clause may be included in contracts for private photography sessions in case of events, such as a sudden illness or natural disaster, that could prevent either the client or the photographer from fulfilling their obligations.
- Professional and private partnerships: A force majeure clause may be included in contracts for professional or private partnerships in case of events, such as a pandemic or government order, that could make it impossible for one party to fulfil their obligations.
- Insurance policies: Some insurance policies may include force majeure clauses in order to cover for losses caused by events like natural calamities and human activities that cannot be controlled by the insured party.
When Can You Invoke Force Majeure Clause?
In case of such unprecedented event, the clause is triggered in accordance with the terms of the contract. Contracting parties may send each other notice advising the other of the occurrence of an event, their incapacity to fulfil their obligations, and their intention to invoke a provision. In such unanticipated circumstances, the clause permits parties to temporarily be relieved from fulfilling their duties. The parties may choose to end the agreement in some circumstances if the unexpected incident lasts a long time. When using the “Force Majeure” clause in a contract, the parties should seek legal counsel to determine the impact on their business and how to carry out their contractual responsibilities.
Common Contracts with Force Majeure Clauses
There are several types of contracts that commonly include Force Majeure clauses, such as:
- Event contracts: Contracts for organizing events or concerts often include Force Majeure clauses to cover unforeseen events, such as natural disasters or terrorist attacks, that could make it impossible or dangerous to hold the event.
- Wedding contracts: Contracts for wedding planning or catering may include Force Majeure clauses to protect both parties in case of unexpected events, such as extreme weather or illness of the parties that could prevent the wedding from taking place.
- Insurance policies: Some insurance policies may include Force Majeure clauses in order to cover losses caused by unprecedented events that cannot be controlled by the insured party such as natural calamities, epidemics, or terrorist attacks.
- Photography contracts: Contracts for photography services may include Force Majeure clauses to cover events, such as illness or natural disasters that could prevent either the photographer or the client from fulfilling their obligations.
- Service contracts: Service contracts, such as those for maintenance, repair, or cleaning services, may include “Force Majeure” clauses to protect both parties in case of unexpected events, such as extreme weather or pandemics, that could prevent the service from being performed.
- Operating agreements: Operating agreements for businesses may include Force Majeure clauses to cover unforeseen events, such as natural disasters or government orders, that could disrupt business operations and prevent the parties from fulfilling their obligations.
How Contract Bazaar can help you Force Majeure Clauses?
Firstly, Contract Bazaar provides pre-drafted legal documents with “Force Majeure” clauses, such as supply contracts, service agreements, and lease agreements, to ensure that your contracts are well-drafted and include the necessary provisions to protect your business from unforeseen events.
Secondly, Contract Bazaar offers customized legal services that cater to the specific needs of your business. Their legal experts can assist you in drafting, reviewing, and negotiating contracts that include “Force Majeure” clauses, ensuring that your contracts are tailored to your specific business requirements.
Lastly, Contract Bazaar offers legal consultation services where their legal experts can provide guidance on the appropriate use of the “Force Majeure” clause in your contracts and the legal implications of invoking it.
In summary, Contract Bazaar can help you with the “Force Majeure” clause by providing pre-drafted legal documents, customized legal services, and legal consultation services.
Special Considerations
Although it is not covered in the organization’s Incoterms, the International Chamber of Commerce has attempted to define force majeure by using the standard of “impracticability,” which states that it would be unreasonable difficult and expensive, if not impossible, to carry out the terms of the contract.
Both parties must be unrelated to the event that creates this predicament, and it must be unexpected and unavoidable. However, it can be exceedingly challenging to demonstrate these circumstances, and in international tribunals, the majority of force majeure arguments are rejected.
Contracts with clear definitions of what constitutes force majeure—ideally, ones that address local threats—hold up better under scrutiny in any jurisdiction. The concept’s use can be strictly confined, even in systems based on civil law.
Force majeure provisions make a lot of sense in theory. One benefit is that they help parties manage risk more effectively and safeguard themselves in case the unthinkable occurs completely out of the blue.
The major problem is that these terms tend to benefit the big players because they aren’t always clear and open. These provisions give large, strong insurance companies a way out of their responsibilities. On the other hand, if the average Joe stands to gain from a force majeure exception, they might not have the resources to support their claim.
FAQs
It is important to include a Force Majeure clause in your client’s contract in order to protect your business from unprecedented events that could disturb the expected course of events. However, including this clause can vary on many factors such as the nature of the contract and the risks associated.
Whether COVID-19 is considered a Force Majeure event depends on the specific terms and conditions of the contract in question. Generally, the pandemic could be considered a Force Majeure event if it fulfils the criteria defined in the contract, such as being an unpredictable and unavoidable event that makes it impossible or difficult to fulfil contractual obligations.
There may be some areas where the Force Majeure concept may not be enforceable such as where the contract explicitly excludes Force Majeure events, or where the event was predictable and could have been mitigated through reasonable efforts.
The terms and conditions of a Force Majeure clause may vary with the nature of the contract, but usually, it outlines events that would be considered Force Majeure events, such as natural calamities, human actions like terrorist attacks, or government orders. It also outlines the procedures for invoking the clause, such as providing legal notice to the other party, and the consequences of invoking the clause, such as the suspension of contractual obligations and potential liability protections.