# Who Determines the Final Settlement Value after a Force Majeure Termination Event Is Triggered? ▴ Question

**Published:** 2025-07-30
**Categories:** Question

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## Concept

When an institutional contract is subject to a [force majeure](https://prime.greeks.live/area/force-majeure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) termination, the question of the [final settlement value](https://prime.greeks.live/area/final-settlement-value/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is not an open-ended negotiation. It is the execution of a pre-configured protocol embedded within the contract’s architecture. The process is governed by the intricate machinery of the agreement itself, a system designed to manage catastrophic risk with procedural certainty. The determination of value is less an act of subjective judgment and more a matter of administrative execution, where the contract’s clauses provide a precise computational formula.

The core mechanism at play is the principle of [contractual supremacy](https://prime.greeks.live/area/contractual-supremacy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The legal agreements underpinning institutional finance function as self-contained operating systems, with specific modules for handling termination events. A [force majeure clause](https://prime.greeks.live/area/force-majeure-clause/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is an input that triggers a predefined subroutine for calculating the final settlement. This calculation is not invented at the moment of crisis.

Instead, it is meticulously defined during the contract negotiation phase, where parties codify the exact components and methodologies for arriving at a terminal value. This ensures that the economic consequences of an unforeseen and uncontrollable event are handled with as much predictability as the system allows.

> The final settlement value following a force majeure termination is determined by the specific calculation mechanics prescribed within the governing contract.

This system-based approach is fundamental to institutional risk management. Investors, lenders, and project sponsors require a high degree of certainty regarding their potential exposures. By hard-coding the [settlement calculation](https://prime.greeks.live/area/settlement-calculation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), the contract provides a transparent framework that allows all parties to model their downside risk accurately. The determination, therefore, is made by the parties themselves, long before the [force majeure event](https://prime.greeks.live/question/how-does-the-waiting-period-in-a-force-majeure-event-impact-liquidity-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) occurs, through the act of agreeing to the contract’s terms.

The person or entity performing the calculation in the aftermath is merely a [calculation agent](https://prime.greeks.live/area/calculation-agent/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), executing a pre-agreed-upon script. The primary determinant is, and always remains, the contract itself.

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## Strategy

The strategic design of a force majeure settlement clause dictates how financial risk is allocated and managed upon a catastrophic termination. The chosen methodology is a direct reflection of the project’s nature, its capital structure, and the risk tolerance of its stakeholders. There are several principal strategic frameworks for structuring these settlement calculations, each with distinct implications for the parties involved. Understanding these strategies is essential for appreciating how the final value is engineered.

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## Valuation Approaches in Termination Scenarios

The selection of a valuation approach is a critical strategic decision made during contract formation. Each model prioritizes different financial metrics, directly influencing the [final settlement](https://prime.greeks.live/question/what-are-the-grounds-for-challenging-an-expert-determiners-final-valuation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) amount. The three predominant models are the ‘Book Value’ approach, the ‘Market Value’ approach, and the ‘Debt’ approach.

The ‘Book Value’ model calculates the settlement based on the historical investment costs recorded on the balance sheet. This method offers a degree of certainty, as it is based on audited figures. It is often favored in projects where tangible asset value is a primary component. The ‘Market Value’ approach, conversely, attempts to determine what a willing buyer would pay for the project or contract at the point of termination.

This can introduce more volatility, as it is subject to prevailing market conditions, but it can also reflect the true economic value of the asset more accurately. The ‘Debt’ approach prioritizes the repayment of senior lenders, calculating the settlement amount primarily by reference to the outstanding [senior debt](https://prime.greeks.live/area/senior-debt/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This strategy is common in highly leveraged project finance deals, as it provides security to the primary capital providers.

### Comparison of Settlement Valuation Strategies

| Valuation Approach | Basis of Calculation | Primary Advantage | Strategic Application |
| --- | --- | --- | --- |
| Book Value | Historical investment costs and recorded asset values. | High predictability and reliance on audited figures. | Asset-heavy projects where tangible value is paramount. |
| Market Value | Estimated price a willing buyer would pay for the contract or assets. | Reflects current economic reality and potential upside. | Contracts for assets with active secondary markets or fluctuating value. |
| Debt Approach | Total outstanding senior debt plus specified costs. | Provides maximum security to senior lenders. | Highly leveraged projects, such as infrastructure Public-Private Partnerships (PPPs). |

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## What Are the Core Components of a Settlement Formula?

Regardless of the overarching strategy, the settlement formula itself is typically built from a series of defined components. These are explicitly listed in the contract to avoid ambiguity. The objective is to create a clear, repeatable calculation that can be executed by a designated party.

- 
**Debt Obligations**. This component almost universally includes the total outstanding principal on senior debt facilities. It often extends to accrued interest, breakage costs, and other fees owed to lenders, ensuring they are made whole as a priority.

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**Equity and Subordinated Debt**. The treatment of equity investors and junior lenders varies significantly based on the chosen strategy. The formula may allow for the return of paid-in equity capital, sometimes indexed to inflation, or it may subordinate these claims entirely to senior debt.

- 
**Operational Costs**. The calculation will typically account for unavoidable costs incurred due to the termination. This can include subcontractor termination fees, employee retrenchment costs, and other wind-down expenses.

- 
**Deductions**. The formula will also specify amounts to be deducted from the payout. These often include insurance proceeds received by the private party or the value of any assets retained after termination.

The strategic assembly of these components into a precise formula within the contract is the essential act of determining the final [settlement value](https://prime.greeks.live/question/what-are-the-primary-legal-agreements-governing-bilateral-settlement-risk-for-rfq-trades/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The process post-termination is the execution of this pre-planned strategy.

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## Execution

The execution phase for determining the final settlement value is a procedural sequence governed by the contract’s specific terms. It is an operational workflow designed to translate the abstract legal language of the force majeure clause into a concrete financial outcome. This process moves from invocation to calculation and, if necessary, to [dispute resolution](https://prime.greeks.live/area/dispute-resolution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), with each step guided by the contractual architecture.

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## The Procedural Workflow for Settlement Determination

The journey from a force majeure event to a final settlement payment follows a structured path. This path is designed to ensure transparency, enforceability, and adherence to the pre-agreed formula. The operational control rests with the party designated as the ‘Calculation Agent’ in the agreement, who acts as the executor of the contract’s instructions.

- 
**Formal Invocation and Notice**. The process begins when one party formally declares a force majeure event. This requires delivering a written notice to the other party, providing full particulars of the event and its impact on the ability to perform contractual obligations. This notice is a critical legal step that triggers the termination and settlement mechanisms of the contract.

- 
**Appointment and Role of the Calculation Agent**. Most sophisticated contracts designate a Calculation Agent. This can be one of the parties, a company’s financial officer, or a neutral third party like an independent accounting firm.
This agent is responsible for gathering the necessary financial data and applying the contractual formula to compute the settlement amount. Their role is administrative, not discretionary.

- 
**Data Aggregation and Formulaic Calculation**. The Calculation Agent proceeds to collect all required financial inputs. This includes statements of outstanding debt, records of equity contributions, invoices for subcontractor costs, and any other data points specified in the settlement clause.
The agent then applies the contractually mandated formula. For example, in a PPP contract using a debt approach, the calculation might be structured as shown in the table below.

### Hypothetical Settlement Calculation Execution (Debt Approach)

| Component | Description | Example Value |
| --- | --- | --- |
| Senior Debt | Principal outstanding on all senior financing agreements. | $150,000,000 |
| Breakage Costs | Fees incurred for the early termination of interest rate swaps and other hedges. | $5,000,000 |
| Subcontractor Costs | Verified termination fees payable to key subcontractors. | $10,000,000 |
| Sub-Total | Aggregate of primary obligations. | $165,000,000 |
| Deductions | Insurance proceeds received related to the force majeure event. | ($20,000,000) |
| Final Settlement Value | The net amount payable to the terminating party. | $145,000,000 |

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## How Is a Disagreement over the Settlement Value Resolved?

While the contract provides the formula, disputes can still arise over its interpretation or the accuracy of the inputs. The contractual system anticipates this possibility and builds in a dispute resolution hierarchy. The court or arbitration panel’s role is not to invent a fair value, but to rule on the correct application of the contract’s own terms.

> A dispute resolution mechanism ensures that disagreements over the settlement calculation are resolved through a predefined process of interpretation and enforcement, not open-ended negotiation.

The process typically follows a path of escalating interventions:

- 
**Good Faith Negotiation**. The first step is a contractually mandated period for the parties to negotiate in good faith to resolve the discrepancy themselves.

- 
**Mediation**. If negotiations fail, the parties may be required to engage a neutral third-party mediator to facilitate a resolution.

- 
**Arbitration or Litigation**. If mediation is unsuccessful, the dispute is escalated to the forum specified in the contract, which is typically binding arbitration or litigation in a specified jurisdiction. The arbitrator or judge will act as the ultimate interpreter of the contract.
They review the evidence, hear arguments on the interpretation of the clauses, and issue a final, binding determination of the settlement value according to the contract’s terms. This final step provides legal certainty and enforces the original agreement.

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## References

- “Final Settlement Prices Clause Examples.” Law Insider, Accessed July 29, 2024.

- “COMPENSATION ON TERMINATION FOR FORCE MAJEURE Clause Examples.” Law Insider, Accessed July 29, 2024.

- European Investment Bank. “Termination and Force Majeure Provisions in PPP Contracts.” EPEC, 2013.

- “Contract Termination, Cancellation, and Force Majeure.” Gilbertson Davis LLP, Accessed July 29, 2024.

- Morris, Walker. “Terminating contracts by force majeure.” Walker Morris, 23 August 2022.

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## Reflection

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## Evaluating Your Contractual Architecture

The integrity of a force majeure settlement rests entirely on the quality of the contractual architecture established at inception. An examination of your own agreements should move beyond confirming the existence of a termination clause. The critical inquiry is whether the settlement mechanism is a robust, well-defined protocol or a source of potential ambiguity. Does the formula for calculating terminal value provide procedural certainty, or does it create room for protracted disputes?

A resilient operational framework depends on contracts that function as precise execution scripts, especially in moments of crisis. The ultimate value is determined not by a negotiation under duress, but by the foresight embedded in the system’s design.

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## Glossary

<a href="https://prime.greeks.live/area/final-settlement-value/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Final Settlement Value

Meaning ▴ Final Settlement Value represents the definitive price or quantity at which a financial contract, particularly a derivative, is ultimately closed and its obligations are discharged at expiration or exercise. </a><a href="https://prime.greeks.live/area/force-majeure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, multi-component mechanism features a light upper segment meeting a darker, textured lower part. A diagonal bar pivots on a circular sensor, signifying High-Fidelity Execution and Price Discovery via RFQ Protocols for Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-rfq-execution-microstructure-for-optimal-price-discovery-and-atomic-settlement-with-prime-os-integration.jpg)

## Force Majeure

Meaning ▴ In the context of crypto investment and trading, a Force Majeure clause refers to a critical contractual provision that excuses parties from fulfilling their obligations when certain extraordinary events, beyond their reasonable control, prevent performance. </a><a href="https://prime.greeks.live/area/contractual-supremacy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Stacked, glossy modular components depict an institutional-grade Digital Asset Derivatives platform. Layers signify RFQ protocol orchestration, high-fidelity execution, and liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/layered-digital-asset-derivatives-rfq-protocol-stack-for-prime-brokerage.jpg)

## Contractual Supremacy

Meaning ▴ Contractual Supremacy, within the context of crypto financial systems and institutional trading, refers to the principle where the terms and conditions explicitly stipulated in a legal agreement govern the relationship and obligations between parties. </a><a href="https://prime.greeks.live/area/force-majeure-clause/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Force Majeure Clause

Meaning ▴ A Force Majeure Clause is a contractual provision that excuses one or both parties from performing their contractual obligations when specific extraordinary events occur, which are beyond their reasonable control and prevent performance. </a><a href="https://prime.greeks.live/area/settlement-calculation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sharp, intersecting metallic silver, teal, blue, and beige planes converge, illustrating complex liquidity pools and order book dynamics in institutional trading. This form embodies high-fidelity execution and atomic settlement for digital asset derivatives via RFQ protocols, optimized by a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-market-microstructure-high-fidelity-execution-across-multi-leg-spread-rfq-protocol-orchestration-within-principals-operational-framework.jpg)

## Settlement Calculation

Meaning ▴ Settlement Calculation refers to the precise determination of the final financial obligations and asset transfers between parties involved in a transaction. </a><a href="https://prime.greeks.live/question/how-does-the-waiting-period-in-a-force-majeure-event-impact-liquidity-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Force Majeure Event

A force majeure waiting period transforms contractual stasis into a hyper-critical test of a firm's adaptive liquidity architecture. </a><a href="https://prime.greeks.live/area/calculation-agent/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent blue sphere, symbolizing precise Price Discovery and Implied Volatility, is central to a layered Principal's Operational Framework. This structure facilitates High-Fidelity Execution and RFQ Protocol processing across diverse Aggregated Liquidity Pools, revealing the intricate Market Microstructure of Institutional Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-execution-system-microstructure-principal-framework.jpg)

## Calculation Agent

Meaning ▴ A Calculation Agent in the crypto context is an independent entity or automated system responsible for determining values, rates, or conditions for financial instruments, especially derivatives like institutional options. </a><a href="https://prime.greeks.live/question/what-are-the-grounds-for-challenging-an-expert-determiners-final-valuation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Final Settlement

Grounds for challenging an expert valuation are narrow, focusing on procedural failures like fraud, bias, or material departure from instructions. </a><a href="https://prime.greeks.live/area/senior-debt/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract digital interface features a dark circular screen with two luminous dots, one teal and one grey, symbolizing active and pending private quotation statuses within an RFQ protocol. Below, sharp parallel lines in black, beige, and grey delineate distinct liquidity pools and execution pathways for multi-leg spread strategies, reflecting market microstructure and high-fidelity execution for institutional grade digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-displaying-multi-leg-execution-status-and-optimal-liquidity-pathways.jpg)

## Senior Debt

Meaning ▴ Senior debt, within the context of crypto financial structures, refers to a class of borrowing that holds priority claim on an issuer's assets and cash flows compared to other forms of debt or equity. </a><a href="https://prime.greeks.live/question/what-are-the-primary-legal-agreements-governing-bilateral-settlement-risk-for-rfq-trades/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Settlement Value

Primary legal agreements are the protocols that transform counterparty risk into a quantifiable, manageable, and legally enforceable set of obligations. </a><a href="https://prime.greeks.live/area/dispute-resolution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Dispute Resolution

Meaning ▴ In the context of crypto technology, especially concerning institutional options trading and Request for Quote (RFQ) systems, dispute resolution refers to the formal and informal processes meticulously designed to address and reconcile disagreements or failures arising from trade execution, settlement discrepancies, or contractual interpretations between transacting parties. </a>

**Tags:** [Risk Management](https://options.greeks.live/area/risk-management/), [Book Value Approach](https://options.greeks.live/area/book-value-approach/), [Market Value Approach](https://options.greeks.live/area/market-value-approach/), [Contractual Supremacy](https://options.greeks.live/area/contractual-supremacy/), [Dispute Resolution](https://options.greeks.live/area/dispute-resolution/), [Calculation Agent](https://options.greeks.live/area/calculation-agent/)	

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- 
### [What Are the Primary Dispute Resolution Mechanisms in an ISDA Agreement?](https://options.greeks.live/question/what-are-the-primary-dispute-resolution-mechanisms-in-an-isda-agreement/)
![A precisely engineered central blue hub anchors segmented grey and blue components, symbolizing a robust Prime RFQ for institutional trading of digital asset derivatives. This structure represents a sophisticated RFQ protocol engine, optimizing liquidity pool aggregation and price discovery through advanced market microstructure for high-fidelity execution and private quotation.](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-digital-asset-derivatives-rfq-execution-core-systemic-hub.jpg)

The ISDA Agreement's primary dispute mechanisms, litigation and arbitration, are core risk systems dictating enforcement and confidentiality.

- 
### [What Are the Strategic Implications of the Force Majeure Clause for Global Trading Operations?](https://options.greeks.live/question/what-are-the-strategic-implications-of-the-force-majeure-clause-for-global-trading-operations/)
![Robust polygonal structures depict foundational institutional liquidity pools and market microstructure. Transparent, intersecting planes symbolize high-fidelity execution pathways for multi-leg spread strategies and atomic settlement, facilitating private quotation via RFQ protocols within a controlled dark pool environment, ensuring optimal price discovery.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-microstructure-prime-os.jpg)

The force majeure clause is a risk allocation protocol that defines contractual resilience in the face of systemic shocks.

- 
### [What Are the Legal Risks of Relying on Common Law Frustration Instead of a Contractual Force Majeure Clause?](https://options.greeks.live/question/what-are-the-legal-risks-of-relying-on-common-law-frustration-instead-of-a-contractual-force-majeure-clause/)
![A precision-engineered apparatus with a luminous green beam, symbolizing a Prime RFQ for institutional digital asset derivatives. It facilitates high-fidelity execution via optimized RFQ protocols, ensuring precise price discovery and mitigating counterparty risk within market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-high-fidelity-digital-asset-derivatives-execution.jpg)

Relying on common law frustration invites legal uncertainty; a force majeure clause provides engineered, predictable risk control.

- 
### [What Steps Should a Firm Take to Ensure Its Close-Out Procedures Are Commercially Reasonable?](https://options.greeks.live/question/what-steps-should-a-firm-take-to-ensure-its-close-out-procedures-are-commercially-reasonable/)
![A multi-layered device with translucent aqua dome and blue ring, on black. This represents an Institutional-Grade Prime RFQ Intelligence Layer for Digital Asset Derivatives. It enables high-fidelity execution through optimized RFQ protocols, facilitating precise price discovery and leveraging deep market microstructure analysis for latent liquidity access.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-intelligence-layer.jpg)

A firm ensures commercially reasonable close-outs by executing a systematic, documented, and risk-tiered process for finality.

- 
### [What Specific Steps Should a Trading Desk Take to Operationally Prepare for a Counterparty Invoking a Force Majeure Event?](https://options.greeks.live/question/what-specific-steps-should-a-trading-desk-take-to-operationally-prepare-for-a-counterparty-invoking-a-force-majeure-event/)
![A sophisticated, modular mechanical assembly illustrates an RFQ protocol for institutional digital asset derivatives. Reflective elements and distinct quadrants symbolize dynamic liquidity aggregation and high-fidelity execution for Bitcoin options. This represents a Principal's operational framework ensuring best execution in market microstructure.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-architecture.jpg)

A trading desk prepares for a force majeure event by embedding contractual, operational, and risk management resilience into its core architecture.

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---

**Original URL:** https://options.greeks.live/question/who-determines-the-final-settlement-value-after-a-force-majeure-termination-event-is-triggered/
