Force Majeure

The clause lists qualifying events, commonly natural disasters, war, strikes, pandemics, government action and sometimes utility or cyber failures. The event must usually be outside the party’s reasonable control and unavoidable by reasonable care. The affected party must give prompt notice and take steps to reduce the effect. The result is normally suspension or an extension of time, with a right to terminate if the event lasts for months, and no liability for damages. Courts read these clauses strictly, and a rise in cost or commercial hardship is generally not enough. In many common law systems there is no general doctrine, so the wording of the contract decides. Civil law systems often provide a statutory version. Risk teams review the clauses in supply and customer contracts and connect them to business continuity plans and insurance. Reviewers check whether the listed events and notice period fit the risks the business actually faces.

A manufacturer’s sole supplier of components has its factory shut by flooding for ten weeks. The supply contract lists floods as force majeure, requires notice within five days and allows termination after 60 days. The supplier gives timely notice and is excused from late-delivery penalties. The manufacturer uses its termination right to bring in a second supplier, which it had not previously qualified.