When contracts are written, there’s an assumption that the world will more or less behave itself. Ships will sail. Payments will arrive. Deliveries will turn up roughly when promised.
Most of the time, that assumption holds.
But every so often – as we are witnessing right now – the world goes completely off script. Wars. Terrorism. Natural disasters. Government intervention. A pandemic that put the entire planet on pause. Events like these don’t just disrupt supply chains and travel plans. They burrow into the fine print of commercial contracts and ask a very uncomfortable question: does this thing still have to happen?
Force majeure is the clause that answers it.
At its core, force majeure is about one thing: if something extraordinary happens, does the contract still have to be performed? Or, more bluntly – who or what gets to stop?
Under English law, the answer depends entirely on what the contract actually says. There’s no automatic legal safety net that swoops in when things go dramatically wrong. If the contract doesn’t include a force majeure clause, there’s no protection. The show must go on.
So, the clause does the heavy lifting.
Most force majeure clauses follow a familiar pattern. They define what counts as a force majeure event – usually a mix of broad language (“events beyond the reasonable control of the parties”) and a list of specific examples, because lawyers don’t like leaving things to the imagination. They then set out what happens if one of those events actually occurs.
In most cases, this means the affected party can pause its obligations while the disruption lasts. Deadlines are often pushed back, and performance temporarily suspended. And if the disruption drags on long enough, the parties may eventually have the right to walk away from the contract altogether.
But – and it’s an important but – force majeure isn’t a get-out-of-jail-free card for deals that have simply become inconvenient or expensive. If raw material prices double or a supplier realises they’ve agreed to genuinely terrible terms, the clause won’t come to the rescue. The world has to do more than make life difficult. It has to make performance genuinely impossible.
Most force majeure stories come from industries where something physical goes wrong. A factory burns down. A shipment never leaves port. A construction project grinds to a halt because the site is underwater – sometimes literally.
Finance, however, plays by slightly different rules.
In a typical lending arrangement, the central promise isn’t to deliver goods or build something, but to repay money. And under English law, the bar for arguing that payment has become impossible is extremely high.
Markets might be chaotic, funding can dry up, and the borrower may be under enormous pressure. But the obligation to pay generally survives all of it. Bankers are many things, but romantics about repayment schedules they are not.
Imagine a company with a £100 million loan, suddenly caught in the middle of a global crisis. Revenues collapse, markets wobble, and the borrower begins combing through the facility agreement in desperation. Somewhere in the document, surely, there must be a clause that says the whole thing can be paused?
In most cases, there isn’t.
Because of that, loan agreements rarely lean heavily on force majeure clauses. Instead, they deal with trouble in a more targeted way, using specific provisions written directly into the documentation.
Illegality clauses, for instance, kick in if a change in law makes it unlawful for a lender to remain part of the deal – sanctions being the most common culprit. Market disruption provisions deal with situations where reference rates or funding markets stop behaving as expected. And material adverse change clauses give lenders protection if a borrower’s financial position falls off a cliff.
It’s the same basic idea as force majeure. Just a different, more finance-flavoured toolkit.
So, while force majeure might pause a construction project or delay a shipment of goods, it rarely offers borrowers a broad escape from repaying a loan. Debt, as lenders like to remind everyone, has a habit of surviving bad weather.
Unlike a straightforward loan, derivatives and structured products are specifically designed to keep working even when markets are under serious strain. Because of that, their contracts tend to build in force majeure-style protections far more explicitly than you would find elsewhere.
A good illustration of this is the 2002 ISDA Master Agreement, the standard contract sitting behind most derivatives trading. It includes a specific force majeure provision that can be triggered when something beyond either party’s control makes it impossible to meet the AC
When that happens, the contract doesn’t immediately pull the plug. It first looks for a more specific remedy already written into the paperwork. Then it allows a period of grace, giving things a chance to settle down, because markets have a well-established tendency to be dramatic about problems that ultimately resolve themselves. Only if matters still haven’t improved does either party have the right to walk away, at which point any deferred payments are settled with interest.
Elsewhere in the financial markets, industry bodies have developed their own detailed rules for handling disruptions such as unexpected market closures or payment system failures – sometimes working alongside force majeure provisions and sometimes replacing them entirely.
How Force Majeure Interacts with Other Legal Concepts
Force majeure sits alongside several other legal concepts that deal with unexpected events.
The closest relative under English law is the doctrine of frustration, which can bring a contract to an end if an unforeseen event makes performance impossible or fundamentally different from what the parties originally agreed. Courts apply it cautiously, particularly in financial transactions where risk allocation is expected to be spelt out in the documentation.
There are also situations where illegality becomes relevant. If a change in law makes it unlawful for a party to perform its obligations – sanctions again being the usual suspect – contractual provisions dealing with illegality will normally take priority.
Some legal systems go further and recognise broader concepts of hardship, allowing contracts to be adjusted when performance becomes excessively burdensome. English law takes a stricter view. Difficulty or expense alone is rarely enough.
Which brings us back to where we started.
Contracts are written on the assumption that the world will behave itself. Most of the time, it does.
But when it doesn’t, force majeure decides something important: not whether the contract exists, but how it survives the moment when the unexpected arrives.
The world will always find new ways to misbehave, and contracts will always struggle to keep up. Force majeure isn’t a magic escape hatch – it won’t undo a bad deal, absorb a loss, or make an inconvenient obligation disappear. But written thoughtfully, it does something genuinely useful. It means that when the truly unexpected arrives, as it inevitably will, the contract already has an answer. And in law, as in life, that’s rather more than most people manage.
Contact Us
