In Ed Steer's column, posted by gwr1, there was the paragraph from Ted Butler's reference that said:

"If and when these four large traders decide they have had enough of the short side of silver, instead of covering their short positions or delivering actual silver, they could declare force majeure and simply walk away and leave the regulators and NYMEX clearing members holding the bag. Since they are outside the jurisdiction of the Commission, there is, currently, little to prevent this.”

The definition of Force Majeur from Wikipedia says

Force Majeure (French for "superior force"), also known as cas fortuit (French) or casus fortuitus (Latin)[1], is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term "act of God" (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract. However, force majeure is not intended to excuse negligence malfeasance of a party, or other as where non - performance is caused by the usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.

The importance of the force majeure clause in a contract, particularly one of any length in time, cannot be overstated as it relieves a party from an obligation under the contract (or suspends that obligation). What is permitted to be a force majeure event or circumstance can be the source of much controversy in the negotiation of a contract and a party should generally resist any attempt by the other party to include something that should, fundamentally, be at the risk of that other party.

So if the Chinese renage on their OTC derivatives when means that the bullion bank's short positions are not offset any more, ie they now have a naked short position instead of a hedged short position, does this allow them to declare force majeur. and 'walk away' from the short positions? Which part of the definition comes into play - Act of God, crime?

The banks are still short the massive number of contracts, except that now they are not hedged, and now stand to lose some money (oops, reduced bonuses next year).

What happens to those that bought the contracts (longs) that the banks shorted?

Cheers.