What you need to know about force majeure clauses.

• This content is for informational purposes only. Consult an attorney regarding specific legal questions.

Explanation and Application

With hurricane season upon us, it is a good time to look at the meaning and effect of the force majeure clause in your contract (or purchase order). It is in the boilerplate you have probably skimmed over with all those other standard clauses. If you had a lawyer perform a review, he or she may have listed it and given you some information about its meaning. Texas recognizes parties have a right to include force majeure clauses in their contracts, but does not limit, restrict, or define that clause.

Definition

Force majeure is often referred to as an “act of God” and this wording is usually included in a contract’s general terms and conditions. However, there are a number of other terms, such as fire, strike, hurricanes, floods, equipment failure, governmental actions, or any other cause not listed, but which are beyond the reasonable control of the party whose performance is affected. The 1st Court of Appeals in Houston recently ruled1 that not only must the event be beyond the reasonable control of the party, but it also must not have been foreseeable. This means that in reviewing the clause, you must list events that might prevent performance even though out of your control. In the case mentioned, a drop in oil prices was considered foreseeable and the party should have included it in the force majeure clause.

Requirements

Force majeure is a temporary excuse for failure to perform all or a part of a contact. For example, it allows a reasonable time to repair damage and then resume performance promptly when the performing affected party’s business is up and running again. Some clauses provide for termination of the contract if performance cannot be resumed within a specific period of time, such as three months. Of course, there may be many other variations.

Steps

A party who is unable to perform based on a defined force majeure event must give notice within a specified number of days or within a reasonable time. Even before sending a formal notice, it would be advisable to speak with the other party or send an email. It would also be a wise idea to have a template prepared in advance so that this requirement can be met timely. The notice should identify the event, the effect on your business, the anticipated delay, and reference to the force majeure clause. After the event is over and you have a date to resume performance, you should send a notice to the other party so they can prepare to receive those goods or services. Keep in mind that the other party may also have been forced to suspend performance or enter into other contracts to cover your inability to perform and they will also need to take appropriate actions.

If you have not already done so, now would be an excellent time to review the force majeure clauses in your contracts and direct any questions you have to your attorney. It would also be a good time to prepare a checklist of actions to be taken as well as a plan for alternate suppliers if such an event does occur. We all hope never to send such a notice but living in Texas we know all about the effects of hurricanes, tropical storms, and tornadoes, so be prepared.

Notes

1. TEC Olmos and Terrace Energy Corp. v. ConocoPhillips Co., No. 01-16-00579, 2018 WL 2437449 (Tex. App.—Houston [1^st Dist.] May 31, 2018)

    

About the author:

JOHN WARREN

is an attorney, mediator, and arbitrator with a focus on energy. He is former senior legal counsel for Petrobras America Inc. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

“The lake, it is said, never gives up her dead
When the skies of November turn gloomy”

Gordon Lightfoot – The Wreck of the Edmund Fitzgerald

Explanation and Application

In 2015, the Michigan Court of Appeals heard the case of Kyocera Corporation v. Hemlock Semiconductor, LLC in which force majeure was alleged as a defense. The Court stated, “This Court has observed that there is a paucity of cases interpreting force majeure clause in Michigan law. See Erickson, 189 Mich. App at 686, and that remains the case today.” This is a good time to look at the meaning and effect of the force majeure clause in a contract or purchase order. It is in the boilerplate language probably reviewed quickly at the last minute with all those other standard clauses. Michigan recognizes parties have a right to include force majeure clauses in their contracts, but does not limit, restrict, or define that clause.

Definition

The Michigan Court of Appeals opined, “Generally, the purpose of a force majeure clause is to relieve a party from penalties for breach of contract when circumstances beyond its control render its performance untenable or impossible.” Force majeure is often referred to as an Act of God and this wording is usually included in a contract’s general terms and conditions. However, there are other terms, such as fire, strike, hurricanes, floods, equipment failure, governmental actions, or any other cause not listed, but which is beyond the reasonable control of the party whose performance is affected. It is instructive to note that the Texas Court of Appeals recently ruled[1] in TEC Olmos, LLC v. Conoco Phillips that not only must the event be beyond the reasonable control of the Party, but was not foreseeable. Therefore, when reviewing the clause, attorneys must list events that might prevent performance even though out of your control. For example, a reduction in oil prices was considered foreseeable and the Party should have included it in the force majeure clause. This is in line with the Michigan Court of Appeals statement that “Force majeure clauses are typically narrowly construed, such that the clause ‘will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.’ In re Cablevision Consumer Litigation 864 F Supp 2d 258,264(ED NY, 2012), citing Reade v. Stoneybrook Realty, LLC, 63 AD3d 433,434; 882 N.Y.S. 2d 8(2009); see also Great Lakes Transmission Ltd Partnership v. Essar Steel Minnesota, LLC, 871 F Supp 2d 843.854 (D Minn, 2012)’.”

Requirements

Force majeure is a temporary excuse for failure to perform all or a part of a contract. This allotted time allows a reasonable time to repair damage and then promptly resume performance after the affected party’s business is operational. Some clauses provide for termination of the contract if performance cannot be resumed within a reasonably specified period. Of course, there may be many other variations depending on local contextual variables and requirements.

Steps

Based on a defined force majeure event, a party unable to perform must give notice within a specified number of days or defined, reasonable time period. Even before sending a formal notice, it is advisable to speak with the other Party or send an e-mail. It is also wise to have a template prepared in advance so that this requirement can be met in a timely fashion. The notice should identify the event, effect on the business, anticipated delay, and reference to the force majeure clause.

After the event concludes and you have a date to resume performance, attorneys notice must be sent to the other Party, so they can prepare to receive those goods or services. The other party may also have been forced to suspend performance or enter into other contracts to cover a Party’s inability to perform. They will also need to take appropriate actions to meet their contractual obligations.

Conclusion

Now is an excellent time to review the force majeure clauses in your client’s contracts and discuss any necessary changes with your client. It is also important to prepare a checklist of actions to be taken as well, as a plan for alternate suppliers if such an event does occur. While we all hope never to send such a notice, living in Michigan means unexpected effects from weather, mechanical failures, delayed shipments, and other events can affect the ability of our clients to perform their contracts.

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Kyocera Corporation v. Hemlock Semiconductor, LLC, Court of Appeals of Michigan, Docket No. 327974 decided December 3, 2015

Erickson v. Dart Oil & Gas Corp., 189 Mich App. 679,689;474 NW2d 150(1991)

TEC Olmos, LLC v. ConocoPhillips, No. 01-16-00579, 2018 WL 2437449 (Tex. App. —Houston May 31, 2018)