Bobby Castro

What Is the Meaning of Force Majeure in Contract Law

Parties who want to prove impossibility and frustration face significant obstacles, so you should consider a force majeure clause in a commercial contract of any size or complexity. For a defendant to be able to invoke force majeure in French law, the event proposed as force majeure must pass three tests: the violation from which a promisor can be exempted by invoking force majeure actually determines the extent of the force majeure clause, although it is often ignored because the parties are concerned about the definition of force majeure event. The parties may agree that force majeure will excuse any delay, delay or non-performance of any condition. Failure to perform, which entitles the injured party to invoke force majeure, can be described in general terms or very specifically; It may excuse the performance of one of the parties, both parties or only one party. Not so long ago, the force majeure clause risked being dismissed as a list of potential disasters, each of which is unlikely, integrated into the text module at the end of a commercial contract. Then came 2020, and force majeure came to the fore as COVID-19 and government shutdowns wreaked havoc on leases and commercial contracts. Disruptions have led to litigation and a growing awareness that we cannot ignore the potential applicability of force majeure to our trade agreements. A positive point on the horizon is that previous case law provides lessons of cautionary tale about what we need to consider when drafting and interpreting commercial contracts in relation to force majeure. In English law, the term “force majeure” does not refer to a doctrine of law.

Since there is no standard meaning or implicit definition of what a force majeure event can represent, a contract can define what constitutes a force majeure event in its definition section. Courts have tried to provide clues as to what is covered by the term in certain circumstances, and in general, force majeure clauses are interpreted restrictively. While there is no general definition of a force majeure event, it would likely include events that are not the fault of either party, such as war, terrorism, epidemics, or nuclear contamination. The force majeure clause will articulate a necessary causal link between the failure of the service and the force majeure event. There is some leeway in the writing process to express how direct causality must be. “Caused by”, “by reason of” or “as a result of” are likely to be interpreted as an expression of a need for an immediate cause, while “exclusively caused by” imposes a heavier, perhaps insurmountable, burden on the harmful promise. In the cases reported so far, the courts have not been too concerned about whether it was the pandemic or government shutdowns or generally depressed economic conditions that caused a celebrity`s losses. It is important to note that these distinctions are one of the main reasons why the customary law of impossibility and frustration of the goal has proven so inhospitable to the parties over the past year, while the courts, particularly in the New York business center, state that financial hardship or economic hardship, even if they are caused by an unforeseen event such as COVID-19, will not excuse the performance of the contract under theories of impossibility or frustration. See e.B.

Lantino v. Clay LLC, No. 1:18-cv-12247 (S.D.N.Y. May 8, 2020). In Argentina, force majeure (fuerza mayor and caso fortuito) is defined in article 512 of the Argentine Civil Code and regulated in article 513. [11] According to these articles, force majeure is defined by the following characteristics:[12] When an avalanche destroys a supplier`s factory in the French Alps, causing long transport delays and forcing the customer to bring an action for damages. The supplier could use a defense against force majeure, arguing that the avalanche was an unpredictable, external and irresistible event – the three criteria used under French law. Determining whether a force majeure clause can be invoked is a factual investigation, as it depends on the specific language of a contract.

In general, force majeure clauses are interpreted restrictively. [4] “General words must not have an expansive meaning; they are limited to things of the same kind or nature as the individual issues mentioned. [5] Force majeure clauses are interpreted in light of their purpose, which is to “limit the damage in a case where the reasonable expectation of the parties and the performance of the contract have been thwarted by circumstances beyond the control of the parties.” [6] “If the parties have themselves defined the contours of force majeure in their agreement, these contours determine the application, effect and scope of force majeure.” [7] The advantage of a force majeure clause is that it allows the parties to rationally distribute the risk imposed by unknown and uncontrollable events. In an ideal world where the parties have the same bargaining power and (most importantly) pay as much attention to the entire contract, including the “boilerplate” during negotiations, a force majeure clause allows the parties to choose the most suitable solution for their situation. There`s not much we can do about unequal bargaining power, such as owner-friendly force majeure clauses in many commercial leases, but we can all pay more attention to the force majeure clauses presented to us in draft contracts. We should revise the standard model, respond to the seemingly one-sided articulations of force majeure rights and possibly mitigate some of the unfortunate results in other of the cases discussed in this article. The same considerations discussed above can also play a role in the interpretation of force majeure clauses already in contractual documents, especially given the COVID-19 era that has so influenced business transactions. The case raised the question of whether it was a breach of the implied good faith and fair dealing agreement (as claimed by the owner of the painting) or simply of the auction house benefiting from a skillfully negotiated risk allocation. This was certainly an unfortunate and potentially avoidable outcome for the owner, who should have paid more attention to a unilateral force majeure clause. (The case also reinforces the benefits of a fifth element of a well-worded force majeure clause: a termination provision.

The owner would have been in a stronger position if the auction house had been forced to decide whether or not to terminate the contract at the time of the cancellation of the auction, rather than taking advantage of the opportunity to sell the painting at auction during COVID-19.) In re Hitz Restaurant Group, discussed above, provided an interesting twist in the role of causality. There, the rental restaurant relied on the force majeure clause of the lease, which included a “state action” as a force majeure event. The court noted that the Illinois closure order only prohibited on-site dining and ordered that the tenant`s rental obligations be reduced proportionately to reflect the portion of his income from on-site food (as opposed to taking away or delivering). The concept of force majeure comes from French civil law and is an accepted norm in many jurisdictions that derive their legal systems from the Napoleonic Code. In common law systems, such as those of the United States and the United Kingdom, force majeure clauses are acceptable, but need to be more explicit about the events that would trigger the clause. Around the world, businesses are struggling to gain productivity as employees are placed in self-quarantine to avoid the risk of exposure to the coronavirus (COVID-19) and because facilities are closed to slow the spread of the virus. In this context, many companies are now trying to determine whether they are obliged to perform under their contracts or whether they can invoke a force majeure clause to excuse performance temporarily or even permanently. Below we discuss force majeure, how it can be applied in different jurisdictions, the analyses that companies must perform before using it, and the options available instead of force majeure. In Argentina, force majeure can be used in civil liability in connection with contractual or non-contractual obligations. However, the term cannot be extended to delays caused by bad weather, football matches or funerals: the English case of Matsoukis v. Priestman & Co (1915) stated that “it is the usual incidents that interrupt work, and the defendants undoubtedly took this into account when drafting their contract […].