Have you ever looked at a Force Majeure clause and think, “I’ll never use this provision of my contract”? Well now is the time to review your contracts and determine whether you could possibly invoke for your benefit, or perhaps conversely, have invoked by another party to your disadvantage a force majeure clause, because of the COVID-19 outbreak.
What exactly is a force majeure? A force majeure clause is a clause inserted into a contract which allows a party or usually both parties to have the ability to not perform some or all of the terms of the contract without being penalised – the force majeure provision usually covers act of good, plague, strike, war, labour disputes or government intervention. It is an event that is not foreseeable and could not have been anticipated at the time of the contract; and was not the making of the person asserting it.
It is important to note that not because there is a force majeure event that takes place one can immediately invoke this clause to avoid performance of the contract.
Here are some of the elements that one must consider when seeking to successfully invoke (or refute) a force majeure clause:
- Has the force majeure created such a circumstance that it is impossible to perform the terms of the contract;
- Was the contract prematurely ended or the provision not performed in anticipation of the force majeure taking place – the force majeure must have been a present event preventing performance;
- Is the force majeure event explicitly spelt out in the provision – or does it fall within a broad category – if the force majeure is stated in a “catch all” phrase it will be a battle to demonstrate that the act was not foreseeable at the time of creating the contract and therefore incapable of being relied on as falling within the provision.
Note that if one wishes to assert the force majeure clause the onus is on the asserting party to prove that the act relied on is truly a force majeure. Courts will generally interpret force majeure clauses very narrowly. Therefore it is important to prove (1) that the foreseeability of the event was absolutely impossible and (2) of course did not exist at the time of entering into the contract and (3) that the event did indeed create a circumstance where the contract could not be performed.
Is it possible for COVID-19 to be invoked as a force majeure?
1. If one is able to prove that the pandemic is an Act of God – then this could be used as a starting point. Act of God has been described using words such as “unexpected, unforeseeable, grave and unusual”. To prove that the COVID-19 is unforeseeable one need ask the question, has the world seen anything like this before? Yes, it has. A further question should be asked, was it expected to have occurred again and in this fashion? It could be asserted that no, this is unexpected. These are fundamental questions that must be answered.
2. Has COVID-19 made it impossible to fulfil the terms of the contract? In many circumstances this will be and is true.
If COVID-19 is not easy to prove to be an Act of God, parties to a contract can assert that the repercussions of the virus has made it impossible to perform the contract and thereby the contract has been frustrated. Frustration is itself characteristically very difficult and the courts in the case of Davies Contractors v Fareham Urban UDC [1956] A.C. 696, stated that the doctrine must be kept within very narrow limits. The Courts must look at the terms of the contract and determine exactly what the parties agreed. Then the Courts look at what is said to be the frustrating event and determined whether what has occurred made performance of the contract, not merely difficult or more onerous, but substantially different from what was contemplated by the parties.
In Conclusion
For businesses it is important to review the details of existing contracts now. Determine the scope of the force majeure clause in the business’ contracts to determine whether there are notice periods or other alternatives to invoking a force majeure clause. It is also necessary before invoking the clause to determine first the implications of doing so.
Please note this is not to be construed as legal advice. All cases are unique to some degree and should be reviewed by an attorney before being acted upon. Please contact us via email at [email protected] if you are seeking legal guidance concerning the above information. The author is an experienced Commercial Attorney who is dedicated toward providing pragmatic legal advice that is clear and easy to follow.
