Acts of God
HDN | 9/19/2009 12:00:00 AM | GARY LACHMAN
The recent flooding and tragedy in Istanbul have occupied many pages of newsprint and countless hours of TV and blame has been cast about like dandelions in the wind.
The recent flooding and tragic loss of lives in Istanbul have occupied many pages of newsprint and countless hours of television commentary. Blame and aspersions have been cast about like dandelions in the wind. All the major municipalities of Turkey employ professional urban planners who together possess enough academic degrees to fill the largest freighter passing through the Bosphorus. Yet despite this plethora of knowledge and experience, disaster struck.
Who is to blame? The answer is far from simple. Devastating floods plague many of the most highly populated and modern cities of the world. Some regions are subject to flooding on a nearly annual basis, as in Southeast Asia and India. Other areas have been shocked by the collapse of infrastructure like New Orleans during Hurricane Katrina. The flooding that occurred in Istanbul last week clearly falls into the legal context of Force Majeure, that is, within the realm of such abnormally bad weather or geological conditions (like a landslide or earthquake) so as to be considered an Act of God by conventional jurisprudence.
Force Majeure clauses in contracts are meant to excuse a party from performance due to certain unforeseen events that could not be avoided by the exercise of due diligence and care. It does not cover failures resulting from a party's financial condition or negligence. Force Majeure literally means "greater force." In addition to severe floods, Force Majeure includes other natural disasters such as hurricanes, earthquakes and tornados, as well as acts of war, epidemic disease, unavailability of services or materials, changes in governmental regulations, acts of terrorism and riots.
As an attorney drafting business contracts, it has become a habit to include such a “boilerplate” clause without even thinking about it. Yet the events of last week are a grim reminder that the unthinkable can, and does, happen. For every substantial business that suffered damage last week, I’m sure there was an attorney who went scuttling back to his/her office to check the existence of an appropriate Force Majeure clause in a contract or lease. In times like these, such boring, boilerplate contract provisions suddenly achieve extraordinary prominence.
When negotiating Force Majeure clauses, make sure the clause applies equally to all parties. Be sure to include specific examples of events that will excuse performance under the clause, and provide concrete measures that the parties will take with respect to one another in the event of a Force Majeure. Will the contract be terminated? Will performance of a service be excused indefinitely or for a specific period of time? Will a payment stream continue or be suspended until the situation is corrected? Do either of the parties have the right to waive its rights under the Force Majeure clause? What will the parties do to resume normal operations? These are some of the issues that must be addressed in a well-drafted Force Majeure clause.
Here's a sample template of a very simple Force Majeure clause where the parties have agreed not to terminate a contract:
“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 necessary license or permit, wars, insurrections and/or any other cause beyond the reasonable control of the party whose performance is affected including mechanical, electronic, or communications failure.”
Courts using the interpretive rule of “ejusdem generis” (of the same kind) could possibly exclude certain unforeseen events unless specifically listed in the Force Majeure clause. One way is to list in the contract as many of the possible uncontrollable events that might cause the terms of the contract not to be fulfilled. As an extra precaution, add the phrase "including but not limited to," as shown in the above example of a Force Majeure clause. Rather than attempting to enumerate every conceivable type of natural disaster, the paragraph lumps everything under the phrase “Acts of God.” This phraseology has been universally recognized by courts as a meaning for natural disasters. Of those counted among the heroes of last week, we shouldn’t forget the lawyers who protected their clients with a well-crafted Force Majeure clause.
© Gary S. Lachman 2009
Gary Lachman is an international lawyer formerly with the U.S. Department of State, a real estate developer and associate professor at Johns Hopkins University with a consulting practice in Istanbul. He can be contacted at [email protected]