FEMA apparently uses an informal metric known as the “Waffle House Index” to determine the severity of a natural disaster. We at TheCorporateCounsel.net have our own informal way of assessing the severity of a legal disaster, and we call it the “Force Majeure Memo Index.” Whenever something bad happens, we don’t worry too much about it unless a major law firm kicks out a client memo (see second blog) citing the potential applicability of contractual force majeure clauses.

Unfortunately, this Faegre Drinker memo on contractual risks for global supply chains arising out of the Iran conflict arrived in my inbox last week, and this excerpt makes it clear that we’ve officially crossed the Rubicon:

Force Majeure (FM) clauses excuse performance if it becomes impossible or impracticable due to events like war, armed conflict, or government actions. They may also provide a right to terminate.

The party seeking performance will argue for a narrow construction of the FM provision, limiting the counterparty’s ability to claim relief. It will challenge any suggestion that the event in question caused an inability to perform, and seize upon any failure by the party invoking FM to comply with contractual notification provisions or to mitigate the effect of the event in question.

The party seeking to terminate or suspend will seek to rely on a broad construction, including of specified events such as “war”, “armed conflict”, “acts of government”, “fire or explosion”, etc. It will argue the event in question fits within the specified events, caused its failure to perform, that it has taken appropriate mitigation steps, and potentially that the prolonged duration of the event gives rise to a right to terminate the contract.

The memo addresses other contractual doctrines that might excuse a party from performing its obligations under a contract, as well as contractual provisions, such as MAC clauses, that might have the same effect. The memo also highlights practical steps that parties should consider in dealing with potential contractual performance issues resulting from the Iran conflict.

– John Jenkins