by Mary U. Irozuru
A force majeure clause is a contract provision that excuses a non-performing party’s failure to perform under a contract upon the occurrence of certain events. As a general rule, courts are limited to the express, unambiguous intent of the parties, but may turn to common law where necessary to fill in gaps. ((See Sun Operating Ltd. P’Ship v. Holt, 984 S.W.2d. 277, 283 (Tex. App.—Amarillo 199, pet. denied).)) To minimize the uncertainty of judicial interpretation, the terms of a force majeure clause should be as specific as possible, particularly the terms describing the events of force majeure and the rights and obligations of the parties upon the occurrence of an event of force majeure.
A typical force majeure clause contains a list of specific events of force majeure along with the generic “catch-all” phrase, “together with all events beyond the reasonable control of the parties.” A non-performing party may rely on a specifically listed event or the generic phrase. When a non-performing party relies on the generic phrase, rather than a listed event, Texas courts have traditionally imposed an additional requirement of unforeseeability. ((See Kodiak 1981 Drilling P’ship v. Delhi Gas Pipeline Corp., 736 S.W.2d 715, 721 (Tex. App. —San Antonio 1987, writ ref’d n.r.e.).)) As a result, successfully invoking force majeure tends to be easier if the event causing the non-performance is among the listed events.
The list of events should represent the desired allocation of risk between the parties. The drafter should identify events that may disrupt performance under the contract, determine whether an excuse for non-performance is appropriate and consider the circumstances of each event. Consider, for example, strikes and industrial disputes, which are frequently listed as events of force majeure. If the non-performing party has the ability to settle and end the strike or dispute, but elects not to do so, the drafter should consider whether the non-performing party should still be excused for its failure to perform. Consider also listing specific events that should not constitute events of force majeure. The breakdown or failure of equipment, lack of funds, and the revocation of a governmental authorization are common exclusions to force majeure.
Finalizing the list of events of force majeure is only half the battle. The drafter must be equally as specific on the rights and obligations of the parties upon the occurrence of an event of force majeure. At a minimum, the non-performing party should be obligated to immediately notify the other party in writing upon the occurrence of an event of force majeure. The notice should describe the particulars of the event and the affected obligations. Consider also requiring the non-performing party to provide an estimate of the duration of the event of force majeure and requiring the non-performing party to use effort, whether commercially reasonable or otherwise, to overcome or mitigate the effects of the force majeure event.
Providing relief to the non-performing party may leave the non-excused party in a bind, particularly if the products or services to be provided under the contract may be easily sold to, or obtained from, a third party. One way to create more balance between the parties is to allow the non-excused party to enter into agreements with third parties during the duration of an event of force majeure so the non-excused party may sell or obtain the products or services that would otherwise have been provided but for the event of force majeure. The drafter should specifically describe the circumstances requiring termination of the third party agreements and the resumption of performance under the original contract. Another way to create more balance between the parties is to allow the non-excused party to terminate the contract after performance is delayed for a certain period of time.
These are just few tips to consider when drafting force majeure clauses, which can come in any number of forms. But, regardless of form, in order to make a force majeure clause work for your client, the clause must be specific and must address the unique circumstances of the parties and their respective industries.
Mary U. Irozuru is an associate at Bell Nunnally and can be reached at email@example.com.