Force Majeure

MAY THE FORCE MAJEURE BE WITH YOU

In many cases, the contractual arrangements entered by COVID-19 affected businesses became impractical or impossible to perform. A contract which is incapable of being completed through no fault of either party becomes ‘frustrated’. The notion of frustration is not a new concept in contract law, and in circumstances where the parties recognise the possibility of a contract becoming frustrated exists, often a ‘force majeure’ clause is agreed to

WHAT IS A FORCE MAJEURE CLAUSE?

A force majeure clause in a contract gives both parties a mechanism to either delay or rescind a contract in the event that something happens which is outside of either party’s control which prevents the contract from being completed, either on time, or at all.
A force majeure clause will contain the following:

• A definition of events that constitute trigger events;
• A mechanism which provides the party impacted by the triggering event the ability to delay their obligations until the event no longer impacts them, or, the ability to rescind the contract;
• A mechanism for the contract to either be rescinded after a certain time or a deadline for when the obligations of the affected party must be completed.
  Force majeure is a concept born in contract law. This means there is no hard and fast rule of what a clause should look like – this is left entirely up to negotiation between the parties.

WHAT IS A TRIGGERING EVENT?

This will differ from contract to contract. The definition of a triggering event might be a list of specific events, commonly, a natural disaster, a particular weather event, or Government intervention. The clause might not define a specific event, making the definition of a triggering event broad. If your force majeure clause is broad, you should seek legal advice prior to activating the clause.

WHAT IF MY CONTRACT DOESN’T CONTAIN A FORCE MAJEURE CLAUSE?

If your contract doesn’t have a force majeure clause but is still incapable of being completed through no fault of either party, you might have a frustrated contract.

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The test for a frustrated contract is very narrow and claiming frustration should not be done lightly. For a contract to be frustrated, the event must cause circumstances in which neither party would have entered the contract had they been foreseen.
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DON’T PANIC. GET ADVICE.

Activating a force majeure clause or claiming frustration of a contract could have unintended consequences and should not be done lightly. Before looking into either, you should consider whether there is any possibility you can fulfil your obligations, and the extent to which you can fulfil them. Neither force majeure nor frustration should be seen as get out of jail free cards.

You should always seek legal advice before acting if you feel you are not able to satisfy your obligations under any contract.