Earthquake Tsunami forces force majeure relook

Earthquake Tsunami forces force majeure relook

Summary: The events unfolding in Japan have forced several entities to declare force majeure events which would give them protection from having to comply with contractual obligations.Several power companies, commodity suppliers and even the MotoGP have declared force majeure in order to postpone deliveries, orders and events.

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The events unfolding in Japan have forced several entities to declare force majeure events which would give them protection from having to comply with contractual obligations.

Several power companies, commodity suppliers and even the MotoGP have declared force majeure in order to postpone deliveries, orders and events. There is even talk that Japan may ask for exemption from the Kyoto Protocol in the wake of the disaster.

A force majeure clause is a useful one for any service provider to have. It is viewed as fair because an "act of God" or unforeseen event is one which the parties would not have contemplated. But, if it happens, then the clause acts to allocate the risk for such an event. The absence of it may mean that the service provider has provided for redundancy in all situations, possibly at a huge cost which would eventually be passed back to the consumer.

A good force majeure clause would also allocate a period of time when the event continues before calling it quits. This allows the customer to exit the contract and have the option to search for alternative suppliers. This could be useful in a limited force majeure, say, where the situation (or situations in the case of multiple tragedies) only affects a specific location.

Increasingly, many force majeure clauses exclude the liability to pay. The rationale is that the payment system is still intact and payments should still continue.

The events in Japan remind us that force majeure should cover multiple events as a single event such as an earthquake, in this case, may lead to other relevant events including tsunami and nuclear leaks. It also suggests that force majeure clauses should be tightened to allow for exit after a period of time.

However, the question over a doomsday scenario is one which is still up in the air and recent events will only serve to heighten such worries.

Topics: Banking, Outsourcing, Asean, Tech Industry

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