Force Majeure Clauses are not just legal “boilerplate”
With the 2017 hurricanes devastating the Gulf Coast, Puerto Rico and other islands in the Caribbean and today’s “bomb cyclone” pummeling the east coast with blizzard conditions, many companies will be unable to perform their contractual obligations, either in the short term or the long term depending on the damage sustained by their facilities and operations. If these companies entered into contracts with well-drafted “force majeure” clauses, they will be able to stand on one leg of a defensible position if their customers sue them for breach of contract.
However, even with a well drafted force majeure clause, a defendant vendor may still lose if the plaintiff customer can show that the defendant did not take reasonable steps to assure redundancy in the vendor’s production facilities and supply chain.
A well drafted force majeure clause is not just a laundry list of extreme weather and natural disaster events with the addition of a few human actions such as war or government embargos. The problem with the laundry list approach is that the event which occurred may be left off the list. For example, the poorly drafted clause lists hurricanes and tornados but does not mention blizzards. Or it may list U.S. governmental actions but not include the actions of foreign governments which can disrupt or prevent contractual performance as well.
Drafting an effective force majeure clause requires an analysis of the real risks to a company’s performance that are outside of its reasonable control as well as notice and remedial action provisions.
Never make the mistake of thinking that a force majeure clause is just legal boilerplate stuck in at the end of a long contract. If, as of today, you are a pharmaceutical manufacturer in Puerto Rico, an oil industry service provider in Houston or a fishery in New England, the force majeure clause in your contracts and the disaster planning you have done to build redundancy into your operations can make the difference between successfully weathering the storm or going out of business.