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This guide explains the different parts that make up the force majeure block.
A force majeure clause is a contractual provision that relieves parties from their obligations under the agreement when unforeseen events or circumstances arise that are beyond their control. These events may include natural disasters, wars, pandemics, or other “acts of God” that could not have been reasonably anticipated by the parties at the time of entering the agreement. The clause serves to protect parties from liability for non-performance or delayed performance due to these unforeseen occurrences.
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In the context of tech contracts, force majeure clauses can be particularly important, as the rapid pace of technological change and the potential for unexpected events can make it difficult for parties to fulfill their obligations under the agreement. Some practical examples of force majeure events in tech contracts may include:
Data center outages: A service provider, such as a cloud computing company, may be unable to perform its obligations under a contract due to a prolonged power outage, natural disaster, or cyber attack that affects its data centers. In this case, the force majeure clause could protect the service provider from liability for service disruption, allowing for a reasonable time to restore services without incurring penalties.
Supply chain disruptions: A hardware manufacturer may be unable to deliver products on time due to unforeseen disruptions in the supply chain, such as a strike at a key component supplier or a shortage of critical raw materials. The force majeure clause would protect the manufacturer from liability for delayed delivery, provided they can demonstrate that the delay was caused by an event beyond their control.
Regulatory changes: A software company may be unable to provide certain features or services in its products due to sudden changes in regulations or the introduction of new laws that restrict the use of specific technologies. In this case, the force majeure clause could protect the company from liability for non-performance, allowing it to modify or remove the affected features without breaching the contract.
Pandemics and public health emergencies: A tech company may be unable to meet its contractual obligations due to the impact of a pandemic or public health emergency on its operations, such as the temporary closure of its offices or the unavailability of key personnel due to illness. The force majeure clause would protect the company from liability for non-performance during the period of disruption, provided they can demonstrate that the event was beyond their control.
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To ensure the effectiveness of a force majeure clause in a tech contract, it is essential to clearly define the scope and conditions of the clause, and to specify the rights and obligations of the parties in the event of a force majeure occurrence. This may include requirements for providing notice of a force majeure event, the process for determining the impact of the event on the parties’ obligations, and any agreed-upon remedies, such as extensions of time or termination rights, in the event that performance becomes impossible or commercially impracticable.
Force majeure blocks will generally start off with a list of events which constitute a force majeure event. In addition to the laundry list of items that may be considered force majeure events, it is also essential to include specific examples that are particularly relevant to the tech industry. By providing practical examples, parties can ensure that the force majeure clause is tailored to the unique risks and challenges faced in the technology sector. Here are some examples of tech-specific force majeure events:
Technological obsolescence: Rapid advancements in technology may render certain products or services obsolete, making it impossible or commercially unfeasible for a party to continue providing them. In such cases, the force majeure clause should protect the affected party from liability arising from discontinuing or modifying the affected products or services.
Cyber attacks and data breaches: Tech companies may experience severe cyber attacks or data breaches that can compromise their ability to perform under a contract. In these situations, the force majeure clause should cover the affected party’s inability to perform its obligations due to such incidents, provided they have taken reasonable precautions to prevent and mitigate such risks.
Hardware or software failures: Unanticipated failures in hardware components or software applications may disrupt a party’s ability to provide its products or services. The force majeure clause should protect the affected party from liability for non-performance or delayed performance due to such events.
Intellectual property disputes: A party may be unable to perform its obligations under a tech contract due to ongoing intellectual property disputes or legal proceedings related to patents, trademarks, or copyrights. The force majeure clause should shield the affected party from liability arising from its inability to perform its contractual obligations due to such disputes.
Artificial intelligence and machine learning errors: Unforeseen errors or malfunctions in artificial intelligence and machine learning systems may impact a party’s ability to perform under a tech contract. The force majeure clause should cover the affected party’s non-performance or delayed performance due to such events, provided they have taken reasonable steps to prevent and address such errors.
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By incorporating these practical examples into the force majeure clause’s laundry list, parties can ensure that the clause is better suited to address the unique challenges faced in the tech industry. Additionally, focusing on the effects of these events, rather than just the events themselves, can help to broaden the definition of a force majeure event, providing more comprehensive protection for the parties involved in a tech contract.
In tech contracts, it is important to consider the impact of including or excluding qualifiers such as foreseeability, fault, and reasonable precautions when building the force majeure block. These qualifiers can significantly affect the scope of the block and the parties’ rights and obligations in the event of a force majeure occurrence. Here are some practical examples to illustrate the implications of these qualifiers in tech contracts:
Foreseeability: In the fast-paced tech industry, certain disruptions, such as cyber-attacks, data breaches, or hardware failures, may be considered foreseeable to some extent. However, excluding the foreseeability qualifier may be necessary to ensure that parties are adequately protected in cases where the cost of addressing such disruptions would be disproportionate to the transaction’s commercial value. For instance, a small software development company may not have the resources to implement costly security measures to prevent a large-scale cyber attack. If the foreseeability qualifier is excluded, the company could still rely on the force majeure clause to protect itself from liability in the event of such an attack.
Fault: When assessing whether a party claiming force majeure is at fault for the default or delay, it is essential to consider the specific circumstances of the tech industry. For example, a cloud service provider may experience a data centre outage due to a third-party vendor’s failure to properly maintain the data centre infrastructure. In this case, it may be appropriate to exclude the fault qualifier, allowing the cloud service provider to claim force majeure protection even if the default or delay was caused indirectly by the third-party vendor.
Reasonable precautions: Tech contracts should clearly define the reasonable precautions that parties are expected to take to prevent force majeure events. For example, a company providing online services may be required to implement industry-standard security measures, regularly update software to address vulnerabilities, and maintain backups of critical data. However, it is important to balance the need for precautions with the potential costs and burdens they may impose on the parties. In some cases, it may be more appropriate to require parties to take only those precautions that are commercially reasonable, given the nature of the transaction and the parties’ resources.
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In summary, when drafting a force majeure clause in tech contracts, it is essential to carefully consider the implications of including or excluding qualifiers such as foreseeability, fault, and reasonable precautions. By tailoring the clause to the unique risks and challenges of the tech industry and the specific circumstances of the transaction, parties can ensure that the force majeure clause provides adequate protection and a fair allocation of risk between them.
In tech contracts, it is essential to define the notification requirements and obligations of the parties in the event of a force majeure occurrence. Clear communication helps to minimize misunderstandings and potential disputes. Here are some practical examples of notification requirements and obligations that can be included as part of the force majeure block:
Timeframe for notification: Specify a reasonable timeframe within which the party claiming force majeure must notify the other party of the event or circumstance. For example, a software development company experiencing a force majeure event, such as a cyber attack, may be required to notify its client within 24 hours of becoming aware of the incident.
Contents of the notification: Require the party claiming force majeure to provide a detailed description of the event or circumstance, including its cause, the affected performance, and the expected duration of the impact. For instance, a data center experiencing an outage due to a natural disaster should provide information about the extent of the damage, the services affected, and the estimated time required to restore operations.
Regular updates: Impose an obligation on the party claiming force majeure to provide regular updates on the status of the event or circumstance and its efforts to overcome or mitigate its effects. This could involve submitting written reports, participating in conference calls, or collaborating on a shared online platform.
Mitigation efforts: Include an express obligation for the party claiming force majeure to use reasonable endeavors to overcome the event or circumstance and to continue performing under the agreement as far as reasonably possible. For example, a cloud service provider experiencing a data center outage could be required to shift affected services to an alternate data center or implement temporary workarounds to minimize disruptions.
Alternative performance: If feasible, consider incorporating a requirement for the party claiming force majeure to explore alternative means of performing its obligations under the agreement. This may involve seeking alternative suppliers, utilizing backup systems, or leveraging new technologies to address the impact of the force majeure event.
By specifying the notification requirements and obligations in tech contracts, parties can better manage the risks associated with force majeure events and minimize potential disputes. Additionally, incorporating express obligations to overcome the force majeure event and continue performing under the agreement can help ensure that parties are actively working to mitigate the impact of such events on their contractual performance. Failure to comply with these express obligations may expose the party claiming force majeure to potential claims for breach of contract, providing an additional incentive for proactive risk management.
In tech contracts, it is crucial to address the possibility of a force majeure event continuing for an extended period, rendering the contract’s performance unsustainable. By including provisions for parties to meet, discuss, and determine the next steps, parties can more effectively manage the ongoing impact of the force majeure event. Here are some practical examples of provisions that can be included in tech contracts:
Review and negotiation period: Specify a period during which the parties must meet and discuss the ongoing force majeure event and explore potential solutions to resume or modify their contractual obligations. For example, the parties may agree to meet within 30 days after the force majeure event has continued for a specified period, such as 60 or 90 days.
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By including provisions addressing the ongoing impact of force majeure events in tech contracts, parties can more effectively manage the risks and uncertainties associated with such events. By stipulating the parties’ obligations to meet and discuss and by setting out clear processes for resolving disputes and exercising termination rights, tech contracts can ensure that both parties have a clear understanding of their options and responsibilities in the event of a prolonged force majeure event.
World Commerce and Contracting provides the following principles relating to warranties-–
1.1
No liability:
Neither Party is liable for failure or delay to perform its obligations
under the Agreement to the extent caused by events
or acts beyond its control which could not have been reasonably foreseeable
when the Agreement was concluded and includes events or acts of:
(a)
acts of God, natural disasters, earthquakes, fire,
explosions, floods, hurricanes, storms or other severe or extraordinary weather
conditions, natural disasters;
(b)
sabotage, contamination, nuclear incidents, epidemics;
(c)
war (civil or other and whether declared or not),
military or other hostilities, terrorist acts or similar, riot, rebellion,
insurrection, revolution, civil disturbance, or usurped authority;
(d)
strikes or other industrial disputes that affect an
essential portion of the supplies or works, except with respect to workers
under the control of the party asking for relief due to this event;
(e)
non-availability or loss of export permit or license
for the products or services to be delivered, or of visas or permits for the
party s personnel;
(f)
requisition or compulsory acquisition by any
governmental or competent authority, embargo, or other sanctions, and
(g)
currency restrictions, shortage of transport means,
general shortage of materials, restrictions on the use of or unavailability or
shortage of power or other utilities,
1.2
Exclusions: The relief in Section 1.1 will
not apply to the extent that:
(a)
the default or the delay was caused by the
non-performing Party; or
(b)
such default or delay could have been prevented by
precautions and could have been circumvented by the non-performing Party using
alternate sources, workaround plans, or other means.
1.3
Obligations: If an event or
act as contemplated in Section 1.1 occurs:
(a)
the non-performing Party must as soon as practical
notify the other Party provide all relevant information, describing at a
reasonable level of detail the circumstances and the performance that is affected;
(b)
the non-performing Party must use reasonable endeavours
to overcome the event; and
(c)
the non-performing Party must continue to perform their
obligations as far as practicable.
1.4
Should either Party be prevented from carrying on their
contractual obligations due to an event above lasting continuously for 30 days,
the Parties will consult each other on the future implementation of the
Agreement.
1.5
If the Parties don t mutually arrive at an acceptable
arrangement within 30 days after that, either Party can terminate the Agreement
immediately on written notice.
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