Why force majeure clauses have become a boardroom issue
An Israeli SaaS company signed a services agreement with an overseas client that included a two-line force majeure clause, copied from an old template. When war broke out and key developers were called up for reserve duty, the company discovered that the clause never mentioned military reserve mobilization or workforce disruption at all, and found itself facing a breach of contract claim.
The COVID-19 pandemic, military operations, global supply chain disruptions, and large-scale cyber incidents have all shown Israeli companies that a generic force majeure clause, borrowed from a foreign precedent or an outdated template, does not always hold up when tested against reality. In a world where unforeseen events are becoming more frequent, the precise wording of this clause can determine whether a company bears liability for damages or receives full protection.
This article reviews the Israeli legal framework, recommended drafting principles, and recurring mistakes that appear in technology companies' commercial agreements.
What Israeli law says about force majeure
Unlike some legal systems, Israeli law does not recognize "force majeure" as an independent statutory concept. The relevant protection is found in Section 18 of the Contracts (Remedies for Breach of Contract) Law, 1970 (חוק החוזים (תרופות בשל הפרת חוזה), התשל״א-1970), commonly referred to as the "frustration/impossibility" defense (הגנת האונס). Under this provision, a breaching party will not be liable if the breach resulted from circumstances the party neither knew nor should have known about at the time the contract was made, and could not have prevented or avoided the consequences of.
Israeli courts have further developed the doctrine of frustration of contract through case law interpreting this same impossibility framework — addressing situations in which performance becomes impossible or fundamentally different from what the parties originally intended. This statutory and judicial framework forms a safety net, but it is limited in scope and depends heavily on judicial interpretation of the specific case.
This is where the practical value of a well-drafted contractual force majeure clause lies: it allows the parties to define in advance, with clarity, which events will justify relief from liability, reducing reliance on after-the-fact judicial interpretation, which is inherently less predictable.
What an effective force majeure clause must include
A good force majeure clause is not a generic list of "natural disasters and wars." It should be tailored to the company's specific business and the risks relevant to its operations.
- Broad but focused definition — cover events relevant to the industry: war, acts of hostility, military reserve call-ups, pandemics, natural disasters, internet or telecommunications infrastructure disruptions, large-scale cyberattacks, and supply chain disruptions.
- Notice mechanism — a clear, reasonable timeframe for notifying the other party of the triggering event, including the required method of notice.
- Duty to mitigate — an obligation on the affected party to take reasonable steps to continue performance where possible, rather than treating the clause as a blanket excuse.
- Defined suspension period — clarity on what happens if the event continues beyond a specified period, including a right to terminate.
- Financial consequences — clarification of whether and how partial payments will apply during the suspension period, and how already-accrued obligations will be handled.
Companies operating in global markets should also ensure the clause is consistent with the governing law of the agreement, since the definition of force majeure may be assessed under foreign law if the contract so provides.
Recurring mistakes in commercial contracts
The most common mistake is copying a force majeure clause from a foreign or outdated template without adapting it to Israeli realities. A clause that does not mention military reserve mobilization, for example, may fail to apply to a company whose technical team is largely called up during an emergency.
A second mistake is drafting the clause too vaguely — a list of "unforeseen events" with no concrete definition leaves broad room for interpretation and dispute. The more precise the definition, the lower the chance of an interpretive dispute ending up in court.
A third mistake is failing to coordinate the clause with the agreement's liquidated damages, limitation of liability, and termination provisions. A force majeure clause that is not aligned with the contract's other mechanisms can create internal contradictions that harm both parties.
A fourth mistake, particularly relevant to SaaS and fintech companies, is failing to address force majeure scenarios involving third-party cloud infrastructure providers — situations where a disruption at a cloud services provider affects the company's ability to deliver service to its own customers.
How Israeli courts interpret force majeure clauses
Israeli courts tend to interpret force majeure clauses narrowly, rather than as a blanket solution for every business difficulty. Case law, including decisions that developed during the COVID-19 pandemic, clarified that not every economic or operational hardship is sufficient to justify relief from performance — a direct causal link must be shown between the extraordinary event and the inability to perform.
Courts also examine whether the breaching party took reasonable steps to address the event, and whether the event was foreseeable at the time the contract was signed. A company that signed an agreement at a time when a particular risk was already known and anticipated will have difficulty invoking force majeure when that same risk later materializes.
It is important to remember that the burden of proof rests on the party invoking force majeure. A detailed contractual clause that defines the relevant events and the required standard of proof in advance significantly eases this burden and reduces uncertainty.
The difference between force majeure, frustration, and impossibility of performance
It is important to distinguish between three doctrines that are often mistakenly conflated. A contractual force majeure clause is a prior agreement between the parties defining in advance which events excuse liability. The statutory impossibility defense under Section 18 of the Contracts (Remedies) Law applies even absent a contractual clause, but requires case-specific proof of the circumstances.
Frustration of contract, by contrast, addresses a situation where the entire purpose of the contract has been frustrated — for example, when performance becomes wholly pointless from an economic or legal standpoint, not merely more difficult. Courts apply this doctrine sparingly, since it risks undermining the stability of commercial agreements generally.
Companies drafting commercial agreements should understand that a well-defined force majeure clause does not eliminate the need to understand the statutory defenses — it complements them and provides considerably greater certainty in advance.
What technology companies should actually do
Companies should revisit the force majeure clauses in their existing agreements rather than relying on old templates. This review is especially relevant for SaaS agreements, managed services agreements (MSAs), and international distribution agreements.
- Map out a risk list specific to the company's industry and sources of exposure, including dependence on external infrastructure providers.
- Ensure the clause explicitly addresses war, pandemic, cyber disruptions, and supply chain disruption scenarios.
- Coordinate the force majeure clause with the limitation of liability, liquidated damages, and termination provisions.
- Establish a clear notice mechanism, including timelines and documentation requirements.
- Revisit the clause at every significant contract renewal, rather than relying on language signed years earlier.
Ultimately, a force majeure clause is a risk management tool, not merely a technical boilerplate provision. A company that invests in drafting it properly in advance saves itself time, cost, and legal uncertainty precisely at the moment it needs certainty most.
The information contained in this article is general in nature and does not constitute legal advice. For advice tailored to the specific circumstances of your company, we invite you to contact our firm.
