The Power of the Force Majeure Clause
The legal term “force majeure” refers to an effect or event that can’t be controlled or anticipated. It also refers to a clause that relieves a party from performing a contract if performance is impossible or highly impractical due to an event that the parties could not have reasonably controlled or anticipated. Examples of force majeure events include war, lockdowns, prolonged shortage of energy supplies, and “Acts of God” like typhoons, earthquakes, and pandemics.
Force majeure clauses are important because they can protect your business from liability when unexpected events prevent you from performing a contract. Read on to learn about its components and why enforceable clickwrap is crucial to force majeure clauses. You’ll also learn how to use contract management tools like Ironclad to create enforceable clickwrap for force majeure clauses.
The importance of force majeure clauses
As a result of the unforeseen global pandemic, force majeure has become one of the most important clauses in a business contract. Many companies rely on this clause to mitigate the risk of non-performance and remove liability for unavoidable and unexpected events.
However, this wasn’t always the case. For the longest time, force majeure was seen as just another “boilerplate” list of potential catastrophes that are unlikely to happen. Force majeure clauses were not usually given much thought or negotiation and considered the stuff of bar exams and law schools. As such, almost all force majeure clauses used the same language.
Force majeure clauses only started rising to the forefront in 2020, when many companies suddenly found themselves unable to meet their contractual obligations due to COVID-19. Businesses began to argue that COVID-19 constituted a force majeure to avoid liability.
Although some could prove their case in court, many couldn’t because their force majeure clauses lacked certain components. Courts typically interpret force majeure narrowly, which means that courts are unlikely to recognize COVID-19 as a valid force majeure if there is no relevant language in the clause referring to it. Courts are especially unlikely to recognize COVID-19 as a force majeure if the impacts on the party were avoidable or if the only impact was making an obligation more expensive to perform.
Components of a force majeure clause
Case law has suggested that you need to include specific components in your force majeure clause. Otherwise, courts won’t enforce your force majeure clause. These components are:
Broad language for describing types of unforeseeable events
Firstly, you need to include a degree of broad language to cover your bases. Courts usually interpret force majeure clauses narrowly, but you need to include some broad language to cover truly unanticipated events.
Many force majeure clauses tack on a long list of potential force majeure events without including a catch-all like “and other unanticipated events beyond the parties’ control” or “or other causes reasonably beyond its control.” Here’s an example:
In the event either party is unable to perform its obligations under this Agreement because of strikes, transmission failure, earthquakes, or energy shortages, such party will not be liable for damages to the other for any damages resulting from a failure to perform.
This approach is risky since it doesn’t cover truly unanticipated events, and it’s why you should always include a catch-all before or after your list of unforeseeable events. If you don’t, you will get unexpected and difficult results.
For example, in Gibson v. Lynn University, No. 20-cv-81173 (S.D. Fla. Nov. 29, 2020), a student sued his university, claiming that the university had breached a contract to provide in-person learning after COVID-19 caused the university to shift to remote learning. The force majeure had said that “[t]here will be no refund of tuition … in the event the operation of the University is suspended at any time as a result of [a force majeure event].” The court dismissed the university’s motion to dismiss, saying that their force majeure clause did not apply because the school never suspended operation but offered an alternative teaching method. If the contract had included “and other anticipated events beyond the parties’ control” after “as a result of [a force majeure event],” the ruling could’ve been quite different.
In contrast, the court ruled in favor of the force majeure clause in JN Contemporary Art LLC v. Phillips Auctioneers LLC, No. 20-cv-4370 (S.D.N.Y. Dec. 16, 2020). This was because the force majeure clause included a list of examples followed by a catch-all, “circumstances beyond our or your reasonable control.” This catch-all, along with one of the examples (“natural disaster”), was enough for the court to conclude that COVID-19 qualified as a force majeure event.
Besides catch-alls, you need to show some causal connection between the force majeure event and the failure to perform.
Pay close attention to the words you choose. Many phrases indicating causation seem similar but can mean different things in the context of a force majeure clause. Courts are likely to interpret “caused by,” “as a result of,” and “due to” as indicators for a proximate cause.
In contrast, language such as “solely caused by” suggests an extremely high bar on the breaching party. Proving to the court that a party’s inability to perform an obligation was “solely caused by the pandemic,” for instance, is incredibly hard. Without “solely,” however, courts are more likely to consider the possibility that a party was unable to perform an obligation due to the pandemic or something caused by the pandemic. In the cases we’ve seen so far, courts aren’t too concerned whether it’s the pandemic itself, government shutdowns, or economic conditions that have caused a failure to perform.
For example, in In re Hitz Restaurant Group, the restaurant successfully involved its lease’s force majeure clause. Because the clause included “governmental action” as a force majeure event and the Illinois shutdown order prohibited on-premise dining, the court ruled in favor of reducing the restaurant’s rent obligations.
Scope of relief
Finally, you need to include the scope of relief that a party is entitled to if their failure to perform is excused by force majeure.
Be as specific as possible when outlining the relief. Remember to consider the context of the contract and how much the other party has already contributed to the deal. If you provide sweeping relief to the breaching party without considering the other party’s contributions, you could get a very lopsided result. And as we all know, unfair results will only lead to more litigation.
Why is enforceable clickwrap crucial to force majeure clauses?
Besides the components covered above, enforceable force majeure clauses should also use clickwrap and follow clickwrap best practices. This will make your force majeure clauses more likely to be enforced in court.
Here are the clickwrap best practices you should follow:
Require every user to unambiguously and affirmatively manifest assent
Clickwrap agreements allow users to agree to your force majeure clause by clicking a button or checking a box that says, “I agree.” Clickwrap replaces signing or placing a signature on a contract with the act of clicking.
Adding clickwrap to your force majeure clause will enable users to quickly assent to your terms without having to send contracts back and forth.
Give each user conspicuous notice of the force majeure terms they’re agreeing to
Clickwrap best practices require you to use eye-catching design layouts to help readers understand your force majeure clause. You also need to clearly establish that the user must accept your force majeure before proceeding to the next part of the contract.
Get consent from users whenever you modify your force majeure clause
If you want long-term transactions to remain legally enforceable, you must ensure that your signers have consented to the latest version of your force majeure clause. As such, you need to notify your users whenever you update your force majeure so they can consent to the new version. With clickwrap, you can simplify the process of getting consent from users. Instead of sending them a new contract to sign, all you have to do is send them an update, show them what you’ve updated, and give them a checkbox or button that they can click to give affirmative and unambiguous assent.
Maintain excellent audit trails
Finally, clickwrap empowers you to maintain excellent audit trails that prove who agreed to your force majeure clause and when. Every time a user clicks on a button or box, clickwrap will automatically generate time-and-date stamps, giving you crystal-clear evidence you can present in court to enforce your force majeure.
Force majeure clauses are more important than ever in the age of COVID-19. However, you need to include specific components to ensure they’re enforceable in court. You should also use clickwrap for your force majeure clauses since following clickwrap best practices will make your force majeure clauses even more enforceable.
Interested in learning more about how you can create enforceable force majeure clauses? Try Ironclad’s clickwrap demo today. Our demo will show you how to streamline and accelerate enforceable online agreements with Ironclad.