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Melini Hadjitheori
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Ahead of the 7th Contract and Risk Management for Construction and Capital Projects, we spoke with Shao-Hua Guo, Senior Counsel, Commercial Practice at LyondellBasell Industries about drafting a force majeure clause and overcoming a force majeure event.

Copyright © 2018 Marcus Evans. All rights reserved.

An interview with Shao-Hua Guo, Senior Counsel, Commercial Practice at LyondellBasell Industries

Shao-Hua Guo, Senior Counsel, Commercial Practice at LyondellBasell Industries

What are the most important components to consider while drafting a force majeure clause?

There are three essential components to consider while drafting a force majeure clause:

1. A clear statement the impacted party is excused from performance if a specified force majeure event occurs.   The parties may agree when a force majeure event occurs, not only the impacted party but also the non-impacted party are excused from performance.  The parties may also agree certain performance will not be excused, such as payment obligation.
   
   
2. List of agreed force majeure events.  Force majeure events can be either natural occurrences such as floods, earthquakes, and hurricanes etc. or man-made events or circumstances such as fires, explosions, strikes, terrorism, and wars etc.  The parties may also agree on the exclusion of certain man-made events or circumstances from force majeure events.
   
   
3. Impacted party’s obligations, including giving notice after it becomes aware of a force majeure event within a reasonable time period, allocating available product inventory or services in a fair and reasonable manner among its customers, and giving a force majeure termination notice when the force majeure event ends,

Are there any best practices for everyone involved in the project to prepare for a force majeure event?

1. Don’t start your project without a contract.  Often a project is started with a LOI (letter of intent).  Most LOI are non-binding; even if it is binding, it does not contain all necessary legal terms and conditions such as the force majeure clause. The force majeure clause sets out the parties’ agreement as to which events will excuse performance under the contract. Without a force majeure clause, when an unforeseeable event occurs, the parties are likely to dispute whether the event shall excuse the impacted party’s performance.
   
   
2. Understand that a main function or purpose of the force majeure clause is to shift or allocate the risk of non-performance caused by a force majeure event. Both parties, the impacted party, and the non-impacted party have to prepare for force majeure events. While the impacted party may suffer directly from the force majeure event, the non-impacted party will also bear the consequences of non-performance of the impacted party.
   
   
3. Consider force majeure along with other risk-allocating means, particularly insurance. Both parties need to be adequately insured.

What is the best way for stakeholders to handle an extended force majeure event?

1. Force majeure events, by the definition, are not foreseeable.  However, the bigger the project is and longer the project takes, it is more likely the parties will encounter extended force majeure events.
   
   
2. As the force majeure clause shifts the risk or burden of the impacted party’s non-performance to the non-impacted party. To protect a non-impacted party from being overly burdened by an extended force majeure event, the force majeure clause may offer the non-impacted party rights to suspend its performance or exit the contract when the force majeure event exceeds a certain time period.

What are the benefits and consequences of implementing a force majeure clause?

1. When a force majeure event has occurred, the impacted party should carefully assess its impact. If the event has a limited impact, it may not be necessary to declare a force majeure.
   
   
2. The benefit of declaring a force majeure is that the impacted party is excused from performance; otherwise, the impacted party may assume liability to the other party for non-performance under the contract.  
   
   
3. Declaring force majeure is a significant undertaking. It requires timely notice to the counterparties, and may require status updates and an allocation of available inventories and services.

Do you think there are any best ways to handle disputes involving force majeure?

1. A well-drafted force majeure clause prevents or minimizes disputes involving force majeure.
   
   
2. A force majeure event is an unfortunate event not only for the impacted party but also for the non-impacted party; therefore the parties shall understand each other and help each other to overcome the impacts caused by force majeure.
   
   
3. Most disputes involving force majeure are resolved by parties’ negotiation and settlement.  Most force majeures, although their impacts can be drastic, are short-lived and the parties will continue the contract and project after the event ends.