Force Majeure

What Is Force Majeure?

Force majeure is a French phrase meaning "superior force." In business and finance, it refers to a clause in a contract that excuses one or both parties from performing their obligations when an extraordinary event outside their control makes performance impossible or impractical. Typical triggers include natural disasters such as earthquakes, floods, and hurricanes, as well as wars, terrorist attacks, epidemics, government orders, and labor strikes.

The clause is written into the agreement in advance. Its wording and the events it covers vary widely, so courts generally read the specific language of the contract rather than applying a single universal rule.

How It Works

Force majeure clauses usually list qualifying events and explain what happens next. A party that wants to rely on the clause typically must:

• Show that the event occurred and falls within the clause's definition
• Show that the event directly prevented it from performing
• Notify its counterparty, often within a set timeframe
• Take reasonable steps to limit the effect of the event

If the clause applies, the affected party may be temporarily or permanently released from its duties, which can prevent a breach of contract claim. Some clauses also allow the contract to be suspended or terminated if the disruption lasts beyond a certain period.

Why It Matters to Investors

Force majeure language can shape how a crisis affects a company's revenue and obligations. When a supplier, buyer, or operator invokes the clause, a company may be unable to deliver goods, finish a project, or collect payment as expected. Investors reading annual reports and regulatory filings sometimes look for references to force majeure to understand whether management is treating a disruption as outside its control.

The clause also has limits. A party generally cannot use it for risks it could have foreseen or prevented, and ordinary economic downturns or higher costs are often not enough on their own. Force majeure is also distinct from business interruption insurance, which pays money for losses rather than excusing performance. Because outcomes depend on the wording and the governing contract law, disputes are common.