09 May 2007 | Steve Bagshaw, in Las Vegas
Force Majeure (FM) clauses are rarely understood, frequently unread and liable to abuse, misinterpretation and ambiguity, which can pose a real threat to buyers.
This common contract clause frees one or both parties from liability when an extraordinary event prevents one or both of them fulfilling their obligations.
Jeffrey Mayer, partner at law firm Freeborn and Peters, told the International Supply Management conference in Las Vegas, this means suppliers invoking FM could be using it as an excuse for non-performance. He said contract drafting needs tightening to ensure the clause is only called upon in the most catastrophic of circumstances.
"It may cause your eyes to glaze over, but it matters," he said. The wording, if left vague, can allow suppliers to use any event to interrupt supply, affecting their customers' ability to serve their own customers and raising the prospect of legal action.
While events such as wars or hurricanes are genuine reasons, he said other events, which may have been foreseeable, are not.
He gave an example of a supplier invoking FM because St Petersburg port froze and goods could not be shipped. "The fact that Russia gets cold in the winter is most definitely foreseeable, and FM does not apply, but the supplier tried it," he said.