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INTERNATIONAL

The new ICC Force Majeure Clause

Force majeure in international contracts.

Fabio BORTOLOTTI - 20.04.20
Country expert

In the context of international contracts unforeseen events may occur (or actually occur) which make the fulfilment of contractual obligation impossible or impracticable. In presence of these force majeure situations the party affected by the impediment is relieved from performance and will consequently not be exposed to the consequences of its non-performance, such as penalties, liability for damages, etc.

This principle is recognized all around the world, but the requirements for being relieved from its obligations and the respective consequences may vary significantly from one jurisdiction to the other, and will finally depend from the governing law of the contract.

This is why parties prefer to avoid the risk of coping with unknown foreign rules by including into their agreements specific force majeure clauses, in order to replace the rules provided in the applicable domestic law with uniform contractual rules. Unfortunately, these clauses are often copied from one contract to another, without verifying their quality, thus favouring the circulation of poorly drafted clauses which may have very negative consequences in case of subsequent disputes.

It is therefore important for business to have access to high quality standard clauses to be used when drafting and negotiating international contracts.

The purpose of force majeure clauses is to draw a reasonable compromise between two contradictory needs: the right of a party to be exonerated from its obligations when their fulfilment is prevented by unforeseeable events for which it is not responsible, and the right of the other party to obtain performance of the obligations agreed with its counterpart.

The traditional approach to drafting force majeure clauses tends to be different in civil law and common law jurisdictions. While civil lawyers tend to depart from a general definition of force majeure, by specifying the conditions (unforeseeability, event out of the party’s control, irresistibility) required for an event to be qualified as force majeure, common lawyers tend to list a number of specific circumstances (acts of god, etc.) which qualify as force majeure events. As it will be seen hereunder, the 2020 ICC force majeure clause intends to draw a compromise between these two approaches by providing a general definition together with a list of typical force majeure events.

 

The new ICC force majeure clause

The International Chambers of Commerce (ICC) first introduced in 1985 a standard force majeure clause (ICC Publication 421) with the purpose of providing traders with a balanced and appropriate tool to be included in international commercial contracts or to be used as a basis for drafting tailor-made clauses. The 1985 clause has been replaced in 2003, by a new version, drafted by a working party of international experts.

Some years ago, the ICC Commission Commercial Law and Practice (the “CLP Commission”) was asked to consider the option of providing a more concise force majeure clause which could be more easily incorporated within the text of the contract. In order to answer this request, the Commission appointed a working party to revise and update the existing clause, which would remain a «long form», and to draft at the same time a «short form» which would maintain the essential elements of the revised long form through a more condensed formulation.

During the years 2017-2019 the working party met several times and drafted two force majeure clauses: (i) an updated long form, which takes into account the market developments of the last years and which at the same time intends to be more accessible to business, through the use of a simpler language and short explanatory notes included in the clause, and, (ii) a short form which can more easily be incorporated in a contract.

While the 2003 long form was accompanied by a commentary which preceded the clauses, and which in fact was rarely consulted by the users of the clause, it was decided to include short explanatory notes within the text of the clause, in order to draw the attention of the reader to some critical issues.

 

The definition of force majeure

The 2019 ICC Force Majeure Clause provides the following general definition of force majeure:

"Force Majeure" means the occurrence of an event or circumstance ("Force Majeure Event") that prevents or impedes a party from performing one or more of its contractual obligations under the contract, if and to the extent that the party affected by the impediment ("the Affected Party") proves:

a)     that such impediment is beyond its reasonable control; and

b)     that it could not reasonably have been foreseen at the time of the conclusion of the contract; and

c)     that the effects of the impediment could not reasonably have been avoided or overcome by the Affected Party.

This clause contains three conditions, all of which must occur in order to relieve a party of its duties. However, as regards the two first conditions, (a) and (b), they are presumed to occur in case of listed events, while the third one must be proved in any case by the affected party.

As already provided in the version of 2003, the clause provides a lower threshold than impossibility in order to relieve a party from its duties, by introducing the criterion of reasonableness. This means that situations where performance is theoretically possible, but in fact unpracticable, may be considered as force majeure.

 

The list of force majeure events

The working group had to decide a difficult issue concerning the relation between the general definition of force majeure and the typical examples of force majeure (listed events) and in particular whether the listed events would fall under force majeure as such, i.e. independently of the presence of the requirements of the general definition, or if, on the contrary, the existence of all the three requirements of the general definition should also be proven for these events. A third, more drastic solution, could have been not to include the list of typical events in the clause at all.

While the first solution was clearly unacceptable, since the existence as such of typical force majeure events, without verifying their actual impact on the performance of the contract by the affected party, could not be considered sufficient; on the contrary, the second solution, i.e. to prove the presence of all the requirements of force majeure for each typical event, would have rendered superfluous the list as such. In theory It would have been logical to cancel tout court the list of events, but it was to be considered that the inclusion of listed events is deeply rooted in commercial practice (especially the Anglo-Saxon world) and this issue could consequently not be abandoned.

The working group has finally opted for a compro­mise solution (which was already provided in the 2003 clause, although with a more complicated wording) according to which, in the absence of evidence to the contrary, the listed events are presumed to fulfil conditions (a) and (b) of the definition of force majeure. Thus, in case of occurrence of one of the listed events, the affected party needs only to prove condition (c), i.e. that that the effects of the impediment could not reasonably have been avoided or overcome, without needing to prove that the event was unforeseeable and beyond its control.

An example of the way these rules may apply to the present situation of Covid 19 may be the following: a supplier invokes force majeure in case of non-delivery of goods due to the coronavirus disease. Since the ICC clause expressly mentions epidemics within the listed events, the supplier need not prove that the event was beyond his control and was unforeseeable at the time of conclusion of the contract, but he must prove that such event has actually prevented the production and/or shipment of the goods at the agreed date. And, should the supplier refuse to supply the goods while he would have been able to do so (for instance because he needs to keep them for other customers), it will not be sufficient to invoke the coronavirus disease, but he will need to prove the existence of further circumstances  preventing him to perform his obligation.

As regards the events included in the list, the 2020 clause lists a number of events which normally amount to force majeure, but the list may be increased or reduced according to the specific needs of the parties, which may substantially vary according to the legal and economic context of each contract.

For instance, the 2003 clause mentioned the event of «civil commotion and disorder», which has not been included in the 2020 version of the list, but this does not prevent parties to expressly add these events to the list, when dealing with countries where these events are more likely to occur. And, having made this choice, the affected party may count on the presumption (save proof of the contrary) that these events were unforeseeable and beyond the control of the parties, and must only prove their impact on the performance of its obligations.

In another case, parties may agree to include also strikes affecting only their own enterprise (while the list refers only to "general labour disturbances"); or, a party may exclude acts of authority in a context where there is risk that these may be influenced by the other party.

 

The consequences of force majeure    

Paragraph 5 of the clause states that: 

«A party successfully invoking this Clause is relieved from its duty to perform its obligations under the Contract and from any liability in damages or from any other contractual remedy for breach of contract, from the time at which the impediment causes inability to perform, provided that the notice thereof is given without delay. If notice thereof is not given without delay, the relief is effective from the time at which notice thereof reaches the other party. The other party may suspend the performance of its obligations, if applicable, from the date of the notice.

It is important to stress that the force majeure event relieves a party from the duty to perform its obligations, but does not entitle the party to claim for the extra-costs sustained or damages suffered as a consequence of the force majeure event.

A second important issue regards the obligation to timely notify the force majeure event. If notice of the event has not been given timely, the relief will only be effective when the notice reaches the other party. Thus, for instance, if an event causing delay in performance is not notified timely, the affected party will benefit of its effects (relief from performance and possible penalty) only from the date on which the other party has been informed.  This is an important means for preventing a party from invoking the existence of an alleged force majeure event only when the other party claims non-performance of its obligations.

Finally, the clause has recognised the right of the other party to suspend the performance of its obligations, «if applicable», from the date of the notice. An attempt to clarify this provision is contained in the explanatory box under the clause where it is said that:

«[...] the other party may suspend the performance of its obligations upon the receipt of the notice to the extent these obligations result from the obligations impeded by Force Majeure and they are suspendable».

In most cases force majeure events are temporary and performance of the agree­ment can be resumed as soon as the circumstances which prevent performance come to an end. Paragraph 6 provides to this effect: (i) that the consequences of force majeure shall apply «[...] only as long as the impediment invoked prevents performance by the Affected Party of its contractual obligations», and (ii) that « [...] the Affected Party must notify the other party as soon as the impediment ceases to impede performance of its contractual obligations

Furthermore, paragraph 8 provides that, when the duration of the force majeure is too long and consequently has the effect of depriving the contracting parties of what they were reasonably entitled to expect under the contract, either party has the right to terminate the contract, by notification within a reasonable time to the other party. As regards the maximum period of suspension, the clause expressly provides a maximum period of 120 days, which applies unless otherwise agreed by the parties.

 

The Short Form

The Short Form is a reduced version of the ICC Force Majeure Clause, which can more easily be included as such in the respective contract.

The Short Form covers the essential issues, but is less complete than the Long Form. It is a fair and balanced standard clause for use in situations where the parties do not have specific preoccupations regarding possible force majeure events and simply wish to include a standard clause without needing to discuss its contents.

However, considering that the Short Form reproduces, although in a reduced form, exactly the wording of the more complete Long Form and follows the same approach of the Long Form, it will be possible, when interpreting the Short Form, to fill possible gaps by referring to the Long Form and its explanatory comments

 

Conclusion

The 2020 ICC Force Majeure and Clause continues the traditional approach used by thein drafting standard clauses, according to which (as shown by the experience made with the Incoterms) the existing standards are maintained and changes are introduced only to the extent necessary for adapting the clause to new legal and market developments.

This has been done also in this case, by simplifying and updating the standard clause, by including explanatory notes in the text and by adding a short clause to be included more easily within contracts.

The text of the 2020 ICC Force Majeure can be found at:

https://iccwbo.org/content/uploads/sites/3/2020/03/icc-forcemajeure-hardship-clauses-march2020.pdf

 

Fabio Bortolotti, Chair IDI, Past chair of the CLP Commission and Chair of the Working Party on the Revision of the Force Majeure and Hardship Clauses

 

 

 

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