In a modern and dynamic business environment, entering into an agreement and executing assumed obligations in good faith are always associated with certain economic and commercial risks. Often, unforeseen circumstances arise that are entirely beyond the control of the parties and make it physically impossible to comply with the terms stipulated by the contract. It is precisely in such critical situations that Force Majeure, or an insurmountable force, acquires paramount legal significance.

Many entrepreneurs, company directors, and business entities often misjudge what constitutes Force Majeure in reality. There is a widespread misconception in Georgian society and business circles that, for instance, a change in the exchange rate of the Lari (GEL), a global economic crisis, or a sharp increase in prices automatically exempts a party from the obligation to perform a contract. In this article, we will examine in detail, in full compliance with the requirements of Georgian law, how the Civil Code of Georgia regulates Force Majeure circumstances, what cases actually constitute Force Majeure according to judicial practice, and how to protect your business from unforeseen legal risks.

 

What is Force Majeure in Legal Terms?

 

Force Majeure is a term of French origin and translates to superior or insurmountable force. From a legal perspective, Force Majeure is an objective event or circumstance that the parties could not have reasonably foreseen and prevented at the time of concluding the contract, and which directly and immediately hinders the proper performance of an obligation.

For a specific event or fact to be qualified by a court as Force Majeure, it must strictly meet the following three primary, cumulative criteria:

• Objectivity and Unforeseeability: The occurrence of the circumstance at the time of executing the contract must not have been foreseeable for a reasonable, average entrepreneur. The event must be absolutely unexpected.

• Inevitability and Insurmountability: The party must be physically unable to prevent this circumstance or overcome its adverse effects through any reasonable alternative efforts. The insurmountable force must be of an absolute nature.

• Causal Link: There must be a direct and immediate cause-and-effect relationship between the occurred Force Majeure event and the non-performance of a specific obligation. The circumstance must directly prohibit or render the performance impossible.

 

Force Majeure under the Civil Code of Georgia

 

Georgian civil law strictly distinguishes between the culpable non-performance of an obligation and non-performance caused by Force Majeure. According to the Civil Code of Georgia, a person is not held liable (e.g., for liquidated damages or compensation for damages) for a breach of obligation if they incontrovertibly prove in court that the breach was caused precisely by Force Majeure and not by their negligence or intent.

Furthermore, Article 398 of the Civil Code of Georgia, which regulates the adaptation of a contract to changed circumstances, is of utmost importance. Businessmen often confuse this article with Force Majeure. If the circumstances that served as the basis for concluding the contract have evidently and substantially changed, and the parties would not have concluded this contract or would have concluded it with entirely different contents had they foreseen these changes, the aggrieved party may request the adaptation of the contract to the changed circumstances. However, it must be emphasized that this is not a classic Force Majeure. This represents the principle of economic complication, known in international law as Hardship, which in itself does not exempt a party from the obligation but grants the right to request a revision of the contractual terms.

 

What is Actually Considered Force Majeure?

 

Taking into account judicial practice and the recognized standards of the International Chamber of Commerce (ICC), classic and indisputable Force Majeure circumstances include the following events:

• Acts of God (Natural Disasters): Destructive earthquakes, massive floods, lightning strikes, severe hurricanes, mudslides, avalanches, and other natural cataclysms that physically destroy the subject matter of supply, the facility, or the infrastructure, rendering the provision of services impossible.

• War and Military Operations: Armed conflicts between states, revolution, civil war, terrorist acts, or the official declaration of a state of emergency or martial law in the country.

• Prohibitions by State Authorities (Legal Force Majeure): Decisions adopted by the government or legislative body that directly prohibit specific economic activities. Examples include economic embargoes, export-import bans, complete border closures, or expropriation/nationalization of property.

• Global Pandemic and Epidemic: As seen recently with the example of the Coronavirus (COVID-19), strict lockdowns, quarantines, and the forced suspension of business activities imposed by the state are unequivocally considered Force Majeure.

 

What is NOT Considered Force Majeure? Practical Examples

 

The majority of business disputes in court arise precisely at the stage when parties attempt to present ordinary, standard business risks as Force Majeure to avoid liability. Below, we extensively discuss common circumstances that legally never constitute Force Majeure:

 

Fluctuation of the Exchange Rate and Price Increases

 

This is the most common and critically flawed perception in the Georgian business reality. The sharp depreciation of the national currency (GEL) against the US Dollar or Euro, high ongoing inflation in the country, an economic crisis, or a global surge in prices for construction materials are absolutely excluded from being qualified as Force Majeure.

A number of precedent-setting decisions by the Supreme Court of Georgia have firmly established that currency exchange rate fluctuation is an inherent, ordinary business risk of commercial relations. An entrepreneurial entity entering into contractual relations is obliged to exercise a high degree of diligence and foresee the probability of macroeconomic changes in advance. Consequently, the economic unprofitability of an obligation, reduced profit margins, or operating at a loss in no way exempts a company from the exact and timely performance of a contract. If you wish to hedge against exchange rate fluctuations, a specific currency indexation clause should be incorporated into the contract, rather than relying on a Force Majeure clause.

 

Breach of Obligation and Delays by Counterparties

 

Companies often fail to perform their obligations because their partner breached their agreement. For instance, if you, as a distributor, fail to supply products to a retail network because your foreign supplier delayed production or transportation was hindered at customs, this is not Force Majeure. The non-performance of obligations by third parties, including subcontractors, constitutes your individual business risk. Before the law, you remain fully liable to the purchaser for the breach of the primary contract.

 

Lack of Financial Funds and Bankruptcy

 

The lack of funds, the imposition of a freeze or collection (incasso) on a company's bank accounts, disputes among partners, the inability to obtain a bank loan, or even the corporate bankruptcy process are never considered Force Majeure. The performance of a monetary obligation (payment of money) is always deemed a physically possible act in civil law. The fact that a specific debtor temporarily lacks adequate financial resources is solely their individual, subjective problem, and not an objective Force Majeure event.

 

Comparative Analysis: Business Risk vs. Force Majeure

 

Circumstance in Business	Is it Considered Force Majeure?	Legal Definition under Georgian Law
Severe earthquake and fire	Yes, it is considered.	An objective, natural disaster event whose prevention is beyond human power.
Sharp drop in the GEL exchange rate	No, it is not considered.	A macroeconomic change representing the entrepreneur's ordinary commercial risk.
Closure of borders by the government	Yes, it is considered.	An imperative legal prohibition rendering cargo transportation physically impossible.
Delay in delivery by a supplier	No, it is not considered.	A culpable act by a third party does not exempt the main contractor from assumed obligations.
Financial crisis and lack of funds	No, it is not considered.	The performance of a monetary obligation is always objectively possible.

 

How to Draft a Force Majeure Clause in a Contract Professionally

 

To avoid prolonged, costly, and complex litigation in the future, it is vital that the Force Majeure clause is drafted in maximum detail, rather than in a boilerplate manner, at the contract formation stage. A standard, generic phrase downloaded from the internet or copied from another contract is often completely insufficient, fails to protect the company's interests, and creates a risk of broad interpretation.

A professional contract drafted by a qualified lawyer must include the following provisions:

• Specific List of Events: Instead of general terms, specifically list what constitutes Force Majeure based on the specifics of your business and industry. Clarify whether you wish to leave this list exhaustive (closed) or open-ended.

• Obligation to Notify and Strict Deadlines: Establish exceedingly strict deadlines—for instance, twenty-four hours or three business days—within which the affected party must notify the other party in writing via official channels about the occurrence of the Force Majeure event. The contract should explicitly state that failing to meet this deadline results in the party permanently waiving the right to rely on Force Majeure for exemption from the obligation.

• Right to Unilateral Termination of the Contract: Detail the legal consequences if the Force Majeure continues for an extended period (e.g., more than one or two months). In such cases, taking business interests into account, the parties should be granted the right to terminate the contract without effect and without any additional penalties, to prevent the economic relationship from being indefinitely frozen.

 

Burden of Proof and the Role of the Georgian Chamber of Commerce and Industry

 

The principle that "he who asserts must prove" (the burden of proof lies with the claimant) operates in legal proceedings. Consequently, merely stating verbally that there are economic problems in the country or that a Force Majeure exists is wholly insufficient. The party asserting Force Majeure and seeking exemption from liability must individually prove both the objective existence of the event itself and its direct, hindering impact on the performance of a specific obligation.

The sole competent body authorized to confirm the existence of Force Majeure circumstances in the territory of Georgia is the Georgian Chamber of Commerce and Industry (GCCI). It is this institution that investigates the circumstances of the case and issues a corresponding official certificate based on the application and solid evidence provided by the interested company. During judicial or arbitration disputes, a Force Majeure certificate issued by the Chamber of Commerce is one of the most weighty, solid, and indisputable pieces of evidence for a law firm to fully defend your business position.

 

Actual Judicial Practice and Supreme Court Decisions

 

For a business to correctly assess its own risks, it is necessary to review Georgian judicial practice. The practice established by the Supreme Court of Georgia over the years clearly demonstrates how strictly the court approaches the standard of proving Force Majeure. The absolute majority of court disputes where companies appealed to Force Majeure ended in their defeat, because entrepreneurs equated business risks with Force Majeure.

One of the most prominent examples is the dramatic fall of the national currency, the Lari, in 2014 and 2015. Several development companies and large importers tried to prove that the depreciation of the Lari against the Dollar was a Force Majeure, due to which they could no longer service loans and fulfill obligations. The Supreme Court unambiguously clarified that an economic crisis, currency inflation, and changes in market prices constitute ordinary commercial risks assumed by any entrepreneurial entity. Accordingly, financial difficulties under no circumstances exempt a party from an obligation.

On the other hand, we also have examples of genuine Force Majeure in judicial practice. During the COVID pandemic, when the state officially issued a decree and directly banned the operation of shopping malls, restaurants, and fitness centers, this was unequivocally qualified as Force Majeure (Legal Force Majeure). In such cases, the court shared the argumentation of the lessees, as there was an objective state prohibition that made it physically impossible to use the premises and carry out the respective economic activities.

 

Force Majeure According to the Specifics of Various Business Industries

 

Every business sector possesses its own unique specifics; therefore, the concept of Force Majeure operates differently across industries. What constitutes Force Majeure in logistics may be completely irrelevant to the IT sector.

 

Construction Sector and Development Companies

 

Delays in the construction process are among the most common problems. Developers often justify missed deadlines with poor weather conditions, such as rain or snow. Legally, standard seasonal precipitation and bad weather do not constitute Force Majeure because they are foreseeable in advance. Only extreme, anomalous natural events, such as an earthquake of high magnitude or a flood that physically destroys the construction site, will be considered Force Majeure for a builder. Furthermore, delays in the supply of construction materials from abroad represent the builder's business risk and not a Force Majeure toward the buyer.

 

Commercial Lease and Tenancy of Premises

 

Proving Force Majeure in a commercial lease is quite difficult. If a company rented office or commercial space but failed to set up the business, has no clients, and can no longer pay the rent, this is not Force Majeure. A Force Majeure clause in a lease agreement can only be invoked if the leased property itself is destroyed (e.g., as a result of fire or explosion) or if the state directly prohibited entry into the building for some emergency reason.

 

International Transport and Logistics

 

Logistics companies most frequently have to deal with Force Majeure risks. When transporting cargo, a sudden closure of borders by a government, the outbreak of war in a transit country, the imposition of international sanctions, or a natural disaster at a port are considered Force Majeure. However, transportation delays due to customs queues or a global rise in fuel prices remain ordinary commercial risks for the logistics company and do not exempt it from liability toward the cargo owner.

 

International Chamber of Commerce (ICC) Standards and Their Impact

 

For Georgian companies actively collaborating with foreign partners, knowledge of international standards is vitally important. The most authoritative document in this regard is the standard Force Majeure clause drafted by the International Chamber of Commerce (ICC).

The ICC Force Majeure Clause 2020 represents a universal and highly professional instrument that can be integrated into any business contract. It allocates risks in detail and precisely defines which events are considered Force Majeure. If a Georgian company specifies in its international contract that Force Majeure circumstances shall be governed by ICC standards, it automatically protects itself from the ambiguities of foreign legislation and ensures the resolution of disputes in accordance with fair, internationally recognized principles. This is particularly crucial in import-export contracts where risks are highest.

 

Frequently Asked Questions (FAQ) Regarding Force Majeure and Business Risks

 

• Is a new virus or pandemic automatically considered Force Majeure? Generally, a pandemic and the strict lockdowns imposed by the state due to it are considered Force Majeure, as it makes a large part of business activities objectively impossible. However, in today's reality, since the COVID pandemic and similar viruses have already become known, widespread, and foreseeable events, they are no longer automatically treated as Force Majeure in newly executed contracts unless the parties specifically incorporate this risk as a separate clause in the agreement.

• Does Force Majeure exempt a company from the obligation to pay money? No, never. According to established legal practice, Force Majeure temporarily exempts a party from additional liability, such as the imposition of fines or liquidated damages, and legally suspends the deadline for the performance of an obligation, but it in no way cancels the principal financial obligation. Repaying a loan, paying rent, or remitting the purchase price for goods is always considered physically possible.

• Where and how should I obtain a Force Majeure certificate in Georgia? As noted above, the sole body issuing official certificates confirming Force Majeure in Georgia is the Georgian Chamber of Commerce and Industry. For this purpose, the interested business entity must submit a substantiated application, a copy of the contract, and all evidence confirming not only the factual occurrence of the event but also its direct and inevitable hindering impact on the performance of the specific contract.

• Is a war ongoing in a neighboring country always a Force Majeure circumstance for a Georgian company? War is considered Force Majeure only and exclusively if it directly and immediately prevents the performance of a contract (e.g., impossibility of cargo transit in a war zone or destruction of products). A war ongoing in a neighboring or third country that caused raw materials to become more expensive for a Georgian company, created logistical difficulties, or triggered a general economic crisis is not considered Force Majeure under Georgian law, as it remains within the category of business risks.

 

Concluding Summary and Recommendations for the Business Sector

 

In any commercial and business relations, prudence, proper risk management, and qualified legal support are crucial for success. Force Majeure is not a magic word or a universal shield that will resolve all economic problems for a business and save it from losses. It represents an extreme, exceptional legal mechanism that operates effectively only during completely objective, external, and insurmountable circumstances.

A clear realization that a drop in the GEL exchange rate, a global financial crisis, inflation, price hikes, or the bad faith of business partners do not constitute Force Majeure will help you manage financial risks much more reasonably and effectively, and maximize your protection in advance, at the contract drafting stage.

Every major business transaction and contract requires a strictly individual approach and in-depth legal expertise. Only highly qualified legal services, a properly drafted contract, and a preliminary legal analysis of risks will ensure that your business interests and finances are fully and reliably protected in any situation, including the most unforeseen economic or social circumstances.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute individual legal advice. Please consult an attorney to discuss your specific case.