Originally from Alternatives to the High Cost of Litigation

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Earlier this year, Luxembourg manufacturer ArcelorMittal announced that it was suspending an iron ore expansion project in Liberia due to the deadly Ebola epidemic in West Africa. The company had claimed force majeure, a common clause in international contracts that frees both parties from liability or obligation when an event beyond the control of the parties prevents performance. Force majeure clauses thus serve as a precaution against the risks posed by certain economic, political, and natural disaster events.

Other recent examples of the invocation of force majeure include Royal Dutch Shell’s suspension of a shale gas exploration project in Ukraine due to its proximity to the crash site of Malaysian Airlines Flight 17; Shougang Hierro Peru’s non-shipment of iron ore due to a worker strike in Peru; and Newmont Mining Corp.’s suspension of work at a copper and gold mine in Indonesia due to the imposition of an export duty and export ban.

Although force majeure is often pleaded in front of an international arbitral tribunal at the breakdown of a contract, these clauses frequently share the fate of dispute resolution clauses, and are not given the attention they deserve upfront during the negotiation of the contract. Instead, parties often insert “boilerplate” force majeure clauses into their contracts that are not tailored to reflect the particular agreement, which might lead to problems if a force majeure event later materializes. It therefore is advisable that parties draft force majeure clauses to deal with the specificities of their agreements.