Force majeure in supply contracts

Three things, typically: an event of the type the clause lists or contemplates, causation between that event and the failure to perform, and that the affected party could not reasonably have avoided or mitigated the consequences. Notice requirements are common and often short.

Because the list matters so much, clauses that predate an event frequently do not cover it, which is what made 2020 a drafting inflection point for supply contracts.

A change in demand, a rise in cost, or a fall in a market price is ordinarily the risk a commercial party took when it contracted. Clauses are generally read as covering impossibility or prevention rather than unprofitability, so a buyer that simply no longer wants the goods is usually not excused.

That distinction matters in surplus disposal, because it is precisely the moment when a buyer wishes it had not committed.

Name the events that matter for the specific supply chain, including port closures and government action. Define the notice period and what the notice must contain. Say what happens to orders in production as distinct from orders not yet started. And specify whether prolonged force majeure gives either party a right to terminate, which is often the term that actually gets used.