Force Majeure in Commodity Contracts: What Traders Need to Know

Force majeure — French for 'superior force' — is a contractual provision that excuses one or both parties from performing their obligations when extraordinary events beyond their control make performance impossible or impractical. In commodity trading, common force majeure events include natural disasters, wars, government export bans, port closures, pandemics, and severe weather events that disrupt production or logistics.

Critically, force majeure is a contractual right, not an inherent legal principle (in most common law jurisdictions). If your contract does not contain a force majeure clause, you generally cannot invoke force majeure protection regardless of circumstances. This is why every commodity contract should include a carefully drafted force majeure provision.

Effective force majeure clauses typically define the specific events that qualify (either through a detailed list or a general catch-all description), establish the notice requirements the affected party must follow, specify the consequences of a force majeure event (suspension, extension, or termination rights), and set time limits after which either party can terminate the contract.

The drafting approach matters significantly. 'Closed list' clauses enumerate specific qualifying events and may fail to cover unforeseen circumstances. 'Open list' clauses include specific examples plus a catch-all category ('and any other event beyond the reasonable control of the parties'), providing broader protection but potentially inviting more disputes about what qualifies.

To successfully invoke force majeure, a party typically must demonstrate that the event was beyond their control, that it was unforeseeable at the time of contracting, that it directly prevented or materially hindered performance, and that they took all reasonable steps to mitigate the impact. Merely making performance more expensive or less profitable is generally insufficient — most clauses require impossibility or serious impediment, not just commercial inconvenience.

Timely notification is critical. Most contracts require the affected party to notify their counterparty within a specified number of days of the force majeure event occurring. Failure to provide timely notice can forfeit the right to claim force majeure protection even when the underlying event clearly qualifies.

The COVID-19 pandemic generated an unprecedented wave of force majeure claims in commodity trading, and the resulting case law has refined how these clauses are interpreted. Key lessons include: pandemics are no longer 'unforeseeable' for contracts entered after 2020, government lockdown orders can qualify even if the disease itself does not, and alternative performance methods must be exhausted before claiming impossibility.

Post-pandemic commodity contracts increasingly include pandemic-specific provisions, longer notice periods, and more detailed mitigation obligations. Some contracts now distinguish between partial force majeure (where performance is reduced but not eliminated) and total force majeure, with different consequences for each scenario.