Legal Drafting Tip: “Force Majeure” Provision

Thursday, April 30, 2015       By Tilly Gray

A force majeure provision generally provides that a party to an agreement is not responsible for the delay or failure to perform any of its obligations if that delay or failure is the result of an unforeseen event beyond the reasonable control of that party.[1]

This is not a clause that should be included as a matter of course in every agreement; however, it is customarily included in agreements that provide for ongoing or future obligations (for example, distribution agreements). If a force majeure provision is appropriate to include, ensure that it clearly outlines the following:
·         The scope of what constitutes a force majeure event. [2]
·         Any conditions surrounding when a party can invoke their rights after such an occurrence.
·         The consequences of such an occurrence, including
o    whether all or only some of the obligations under the agreement are excused (for example, payment obligations may be dealt with differently than obligations to supply a product or service[3]),
o    the length of time that those obligations are excused for,
o    whether the invoking party is responsible for damages as a result of the delay or failure to perform those obligations, and
o    whether a protracted force majeure event should result in the termination of the agreement.
·         The notice requirements when a party wishes to
o    invoke their rights under the force majeure provision, and
o    indicate when the force majeure event has ended.
[1]As described by the Supreme Court of Canada in Atlantic Paper Stock Ltd. v St. Anne-Nackawic Pulp & Paper Co., a “force majeure provision … generally operates to discharge a contracting party when a supervening event, beyond the control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill.”
[2] Our firm’s precedent Boilerplate Agreement contains the following definition: “any act, occurrence, condition, or event beyond the control of a party that materially affects the performance of that party’s obligations under this agreement that could not reasonably have been foreseen or provided against (including strikes[, work stoppages and slowdowns], riots, insurrections, wars, acts of terrorism, military or national emergencies, acts of Governmental Authority, natural disasters, power outages and interruptions, brownouts, and fire), but does not include general economic or other conditions affecting financial markets generally.”
[3] Under Canadian case law, suppliers are under a duty to act in a commercially reasonable manner in terms of allocation (in other words, as between customers of the party invoking force majeure). Consider in such a case adding a clause providing that, during the occurrence of the force majeure event, the quantities of products affected by that event will be excluded from the agreement and the supplier will allocate its supply of products. The party invoking force majeure is entitled to act reasonably with respect to allocation since the parties will not have been able to specify beforehand how to deal with any remaining products during such an event.