Force Majeure and Hardship Clauses

A force majeure clause is written into contracts in order to free parties from their obligations when an event occurs which is beyond their control and which impedes or delays performance of the contract. The clause can be drafted to cover any extraordinary event such as war, natural disasters, riots or strikes.

A force majeure clause is usually inserted into contracts to prevent the doctrine of frustration being invoked. Unlike frustration which automatically terminates the contract, these clauses provide flexibility to the parties allowing them to adjust the contract in the event that performance becomes impossible. The doctrine of frustration also operates in narrow limits making it preferable for the parties to provide for supervening events themselves.

Well-drafted force majeure clauses will usually consist of three parts. The first is a description of the events that will trigger the operation of the clause. Usually, the first part will include a list of specific events whilst the second part will consist of a general provision intended to cover events not expressed specifically. These events are commonly those beyond the control of the parties.

The second part consists of the obligations of the parties in reporting the occurrence of a “force majeure” event. This should cover matters such as the person to whom the report should be made, the time at which it should be made, the form it should take and the consequences of a failure to make a report in the correct way.

The third part details the remedies available following the occurrence of a “force majeure” event. These may include the right to extend or to cancel the contract. The clause may also provide for the suspension or variation of the contract. Clearly, there is greater remedial flexibility provided by a force majeure clause than by the doctrine of frustration.

The presence of a force majeure clause may not necessarily exclude the doctrine of frustration. The clauses are primarily intended to cover events which are capable of resolution within a short period of time and a court may therefore conclude that it does not extend to catastrophic events which would render any future performance impossible. Whether such rare catastrophic events fall within the scope of the clause is a matter of construction.

Hardship clauses also deal with unforeseen events arising since the formation of a contract, which render performance more onerous than originally contemplated. These clauses should also be drafted so to define the circumstances in which a “hardship” will exist and the procedure to be adopted in this event. These clauses are designed to enable the parties to continue the contract on different terms. So, whilst force majeure clauses deal with performance that is no longer possible, at least temporarily, hardship clauses deal with performance that has become more burdensome than anticipated.

If you’re interested in Contract Law or Buying and Selling a Business and would like to find out more, please contact Izaz Ali on izaz.ali@lawdit.co.uk

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