46 Force Majeure

Desired result:

The goal of the Force Majeure clause is to ensure that in the event of an unforeseen catastrophe, or “Act of God,”^[1] that would prevent an impacted party from meeting their principal obligations under the contract, they will not be held liable for breach of contract by the other party. Creating mutuality for this clause is the most desirable outcome, so that both parties are equally protected from litigation due to events outside of their control.

Essentials of the law (what does the provision mean):

Force majeure is conventionally understood to include unforeseeable external events that prevent a party’s performance of contract obligations. Provisions of the kind recommended here help to assure that no damages can be claimed against a party who fails to meet such an obligation and that the license agreement may not be terminated based on such a failure.

Typically, in eResource agreements, the Licensor will greatly benefit from a force majeure clause, because they bear a contractual obligation to provide continual service, as opposed to the Licensee’s obligation to make timely payments. Since having this clause is in the Licensor’s best interest, the language is likely to already be present in the proposed contract and will only require slight modifications to create mutuality.

A breach of this provision will be settled based on the implications of your governing law and/or resolution clauses. However, if a force majeure claim were to go to court it may be interpreted based on (1) whether the specific event was included in the clause and (2) the foreseeability of the event.^[2]

Desired language:

“In the event an unforeseeable event makes delivery and performance impossible, neither party shall be liable in damages or have the right to terminate this Agreement for any delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including, but not limited to Acts of God, Government restrictions (including the denial or cancellation of any export or other necessary license), wars, insurrections, labor strikes, or other work stoppages, and/or any other cause beyond the control of the party whose performance is affected.”^[3]

Tricks and traps:

The most common problem with a force majeure clause is that it is not mutual. Although the Licensor bears most of the risk, there are always circumstances that could limit a Licensee from meeting their obligations and ending up in breach of contract. The easiest way to resolve this is by modifying the language to say neither party can be bound under such circumstances.

Additionally, you want to make sure the examples provided in this clause do not include circumstances within the Licensor’s control, such as layoffs or business setbacks. Any examples that give the Licensor too much leeway can be stricken from the proposed clause.

The list of force majeure examples does not need to be exhaustive, but rather to provide a generalized scope. To ensure that the examples are not interpreted as a finite list, it’s best to use the phrase “including, but not limited to” or “…and other [similar] events beyond the [reasonable] control of the Impacted Party.“^[4]

Furthermore, the clause should define force majeure as delivery or performance that is “impossible,” rather than “impracticable” or its equivalents. Since force majeure can be used as a defense against breach, it is important not to use subjective terms, so that there is less room for interpretation.

Damages may be awarded in the event of a force majeure breach, so you should ensure that damages for breach of Licensor’s obligations are expressly addressed elsewhere in the contract (typically the liability section). Cancellation fees in the event of force majeure breach should be waived and this can be addressed in the early termination section of the contract.

Importance and risk:

A force majeure provision is not essential, but is a smart idea to include as it provides protection against unforeseeable events. While the Licensee is normally assuming less risk for breach of contract due to their minimal obligations, it’s always beneficial to create this built-in safeguard against liability and/or termination.