Force Majeure

For project finance transactions, which take place largely in developing countries that are subject to unstable environments, special attention is required in the drafting of project agreements. In this regard, Force Majeure events represent a material risk to the success of projects.

The legal concept of force majeure is that a party should not be held responsible for performing its obligations under a contract where that performance is prevented by circumstances beyond that party’s control (Covid-19, earthquake, hurricane etc.). Consequently, it is fundamental to address this risk in the financing documents. In practice, how a force majeure clause works is that, upon the occurrence of the trigger event, if that event prevents a party from performing its obligations, then the duty to perform those obligations will be suspended for the duration of the event.

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The risks applicable to a project vary from sector to sector and project to project, but they will likely depend on the following: Nature of the project Project financing techniques are used in severa