Drafting and Enforcing Force Majeure Clauses: Mitigating Liability for Unforeseen and Unprecedented Circumstances

Description

As the global economy continues to face the impacts of geopolitical events, natural disasters, and other challenges, many businesses are defaulting on contractual obligations. To mitigate liability for unprecedented events, companies are taking a closer look at force majeure clauses, which were previously considered a boilerplate feature of most agreements that were seldom negotiated or considered by counsel. However, since the COVID-19 pandemic, contract drafters are now taking care in drafting force majeure clauses as a way to provide an affirmative defense to default, but the question remains--what elements or challenges invoke the terms of these clauses?

Businesses must determine whether circumstances presented by various events meet the legal requirements of force majeure and that such provisions are sufficiently specific to be enforceable. For a party to invoke the clause, the event must be unforeseeable. Boilerplate agreement language often includes a laundry list of events defining an "act of God," but a court may or may not agree that a particular event is covered. Further, enforcement of a force majeure clause requires that the company prove that the force majeure event defined in the contract caused a party's inability to perform a contract obligation.

Force majeure enforcement is also highly contingent on the country of implementation and, in this circumstance, the impact of a particular event on a region's supply chain and workforce. China and the European Union use varying definitions for enforcement, and anticipating issues that may arise in a default informs counsel on how to draft the optimal provision to protect a business from future catastrophic losses.

Listen as our expert panel provides practical advice on drafting a precise and enforceable force majeure provision so counsel may save their clients from unforeseen and unprecedented circumstances.