What Happens When the Unexpected Strikes?– Understanding the Force Majeure Clause in Contracts

You may have come across a Force Majeure clause in contracts — a provision that relieves a party from liability when unforeseen, uncontrollable events prevent contract performance. While not always a mandatory clause, the COVID-19 pandemic in 2020 dramatically changed how businesses view this provision.

As global supply chains broke down and lockdowns made fulfillment impossible, companies quickly realized the critical importance of having this clause in place. Today, it's increasingly common to explicitly include events like pandemics in Force Majeure definitions, especially in international trade and startup contracts.

This article explores why the Force Majeure clause matters, what it should include, and how real-world cases highlight the risks of vague or missing language.

"Force Majeure" is a legal term derived from French, literally meaning "superior force" or "overwhelming power."

What Is a Force Majeure Clause?

Force Majeure refers to unforeseeable, external events beyond a party’s control that make it impossible to perform contractual obligations. Examples include natural disasters, war, pandemics, government actions, or port strikes.

A Force Majeure clause protects the affected party from being held in breach of contract when such events occur.

Why It Matters

International business is exposed to many external risks — from logistics and cross-border movement to sudden legal or political changes. Without a Force Majeure clause, a company may be held liable even when a global crisis makes contract performance impossible.

Key Components of a Force Majeure Clause

1. Definition
   Clearly define what constitutes a Force Majeure event. This may include natural disasters, war, terrorism, epidemics, pandemics, government restrictions, etc.

2. Notice Obligation
   The affected party must promptly notify the other party and describe the impact of the event.

3. Burden of Proof
   The party invoking the clause must prove that performance was genuinely impossible — not just more difficult or costly.

4. Suspension or Termination
   Contractual obligations may be suspended until the event ends. If the Force Majeure event continues beyond a set period (e.g., 60 or 90 days), either party may terminate the contract.

5. Limitations and Exclusions
   Events that are foreseeable or recurring (e.g., recurring port strikes) may not qualify unless explicitly included.

Sample Force Majeure Language

“Neither party shall be in breach of this agreement or otherwise liable for any failure to fulfil its obligations if such failure results from events, circumstances or causes beyond its reasonable control, including but not limited to acts of God, natural disasters, war, terrorism, pandemics, or power failures. The affected party must notify the other party as soon as reasonably feasible and take all reasonable steps to mitigate the impact. If the force majeure event continues for more than 90 days, either party may terminate the agreement upon written notice.”

Common Force Majeure Events in Practice

• Natural Disasters: Earthquakes, fires, floods, typhoons

• War & Armed Conflict: War, invasion, hostilities, export bans

• Civil Unrest: Rebellion, riots, strikes, lockouts

• Governmental Action: Regulatory changes, import/export restrictions, executive orders

• Epidemics & Pandemics: Widespread disease outbreaks (e.g., COVID-19)

• Other Events: Nuclear contamination, terrorism, long-term transportation shutdowns

What Companies Should Watch For (Especially Exporters)

1. Refunds and Payment Terms

   • Is the party obligated to refund prepaid amounts in the event of a Force Majeure?

   • If part of the contract was performed, should payment be prorated or refunded in full?

2. Termination Rights

   • Is there a clear time frame (e.g., 60 or 90 days) after which termination is allowed?

   • Are the procedures and consequences of termination clearly spelled out?

3. Scope of Liability Exemption

   • Does the clause cover all damages or only direct damages?

   • Are foreseeable risks expressly excluded?

4. Notice and Proof Requirements

   • What is the notice period (e.g., within 10 days)?

   • What documents are needed to prove the Force Majeure event?

Case Summaries

1. COVID-19 Pandemic Case (UK High Court, 2020)

   • A supplier failed to deliver goods due to the pandemic, but the clause did not explicitly list "pandemic" as a Force Majeure event. The court denied exemption.

2. Raw Material Supply Dispute (China–Europe)

   • A Chinese supplier couldn’t export due to government orders. With no refund clause, the court ordered a refund for undelivered portions only.

3. Machine Export Contract Dispute (US–Asia)

   • A port strike delayed delivery. The contract specifically included "port strike" as a Force Majeure event and allowed termination after 90 days, protecting the supplier from liability.

Practical Checklist and Tips

• Be specific about what counts as a Force Majeure event

• Define refund and termination procedures clearly

• Limit or clarify the scope of liability exemption

• Set reasonable notice and documentation standards

• Tailor the clause to your business model and risk exposure

Practical Tip:
The Force Majeure clause is not just about liability — it can affect refunds, payment terms, and termination rights. Customize the clause to reflect your actual business risks, and consult a legal expert to ensure the language is enforceable.

Conclusion

A well-drafted Force Majeure clause can protect your business from major risks beyond your control. Don’t assume a generic clause is enough. Review the language carefully, ensure it addresses real-world consequences like refunds and termination, and align it with your operational reality.

For tailored advice on contract drafting or review, feel free to contact me at sc@lexsoy.com.

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