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Hurricane Sandy and the "Force Majeure" Clauses in Contracts

The seriously impacted by Hurricane Sandy may raise the possibility of potentially breaching contracts.

Many of you (or those firms with which you do business) have been seriously impacted over the past two weeks by Hurricane Sandy. Power failures, gasoline shortages, flood and wind damage and other factors may make it difficult or impossible to conduct business normally, and may raise the possibility of potentially breaching contracts.

Fortunately, many agreements contain a so-called "force majeure" clause, which can temporarily excuse a failure to perform under a contract caused by circumstances outside the party's control, as with this example:

Neither party shall be deemed in default of this Agreement to the extent that performance of its obligations or attempts to cure any breach are delayed or prevented by reason of any act of God, fire, natural disaster, accident, riots, acts of government, shortage of materials or supplies, or any other cause beyond the reasonable control of such party; provided, that the party interfered gives the other party written notice thereof within ten (10) working days of any such event or occurrence.

Some clauses specify the types of circumstances that trigger the right not to perform, while others are more general. A force majeure clause may also carve out certain obligations that are not excused, such as a requirement to make payments.

Even where a contract does provide for a force majeure excuse, it may require certain actions by a party in order to take advantage of the clause. One possible requirement is notice; in the sample provision above, the party that couldn't perform must provide the other party with written notice "within ten (10) working days of any such event or occurrence." If this notice is not given (or given late), the failure to perform may be deemed a breach of the contract. In other agreements, the party seeking to take advantage of a force majeure right may be obligated to do what it can to mitigate (or reduce) the damages caused by its non-performance in order to be generally excused, whether after the fact or in anticipation of a possible force majeure event.

However you may have been affected by Hurricane Sandy or other major situations out of your control, we would advise you to review all of your relevant contracts, particularly any force majeure sections. Whether you need to take advantage of such a right, or you may anticipate others with which you have contracts doing so, it's crucial you are aware of any restrictions and requirements contained in the language of the provision, and particularly that you ensure you meet any deadlines to notify other parties of your business's problems.

If you would like more information about force majeure clauses generally, or need assistance with particular current and future contracts, please contact the Olshan attorney with whom you regularly work or Jonathan I. Ezor, Counsel to Olshan.

This publication is issued by Olshan Frome Wolosky LLP for informational purposes only and does not constitute legal advice or establish an attorney-client relationship.  To ensure compliance with requirements imposed by the IRS, we inform you that unless specifically indicated otherwise, any tax advice contained in this publication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.  In some jurisdictions, this publication may be considered attorney advertising.
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