The restrictions and protective measures implemented by the government to cope with Covid-19 have made it impossible for some businesses to fulfil their contractual obligations. This raises questions on how they can delay performance of the contract or be released from the contract without being penalised.
In this post, I’ll dive into some questions you may have about force majeure clauses in the context of this pandemic.
What is ‘force majeure’?
Force majeure refers to instances where the parties can’t perform their obligations due to circumstances beyond their control (a ‘force majeure event’).
A force majeure clause can alter the parties’ obligations and/or liabilities under a contract upon the occurrence of a force majeure event. A force majeure clause may refer to wars, riots, civil unrest, pandemics and epidemics, floods and fire.
Read our guide on force majeure to learn more.
Is Covid-19 a force majeure event?
This depends on the wording of the clause.
You should review the force majeure clause to see if ‘pandemics’ or words to this effect are defined as a force majeure event. If so, then Covid-19 could be a force majeure event. Alternatively, if there is a catch-all provision which covers unexpected events that are beyond the parties’ reasonable control, it may also be interpreted to include Covid-19.
What if a force majeure clause doesn’t refer to ‘pandemics’ or ‘epidemics’?
Consider whether Covid-19 or its implications can fall within other categories of events in your clause. For example, Covid-19 could arguably be an ‘act of God’ and policies on social distancing and lockdown may be argued as ‘governmental action’.
How do I show that Covid-19 is a force majeure event?
You must show that:
- Covid-19 falls within one of the force majeure events specified
- the pandemic has prevented or delayed the performance of your contractual obligations
- all reasonable steps have been taken to mitigate the impact of Covid-19
You must also show that it has become ‘physically or legally impossible’ to perform your obligations. It isn’t sufficient if performance has only become less profitable or more difficult.
Where your force majeure clause involves phrases such as ‘results from’ or ‘causes’, you may be required to show that you would have been ready and willing to perform but-for the pandemic.
If you’re satisfied that Covid-19 is covered by your force majeure clause, make a force majeure contract termination letter to notify the other party.
Read our guide on force majeure to learn about the practical steps when making a claim.
Can a I rely on force majeure if there is not an express clause?
No, you can only benefit from the concept of force majeure if there is an express clause.
Where there isn’t such a clause and it became impossible for you to perform due to an unexpected event, the concept of “frustration” may provide relief. The event must be beyond your control and have rendered the performance impossible, illegal or turned the performance into something radically different from your initial undertaking.
You may argue that this pandemic has frustrated the contract because:
- the person or item essential for the performance of the contract is temporarily unavailable
- the contract is now illegal due to a change in legislation or emergency legislation
- the subject matter that is obtained or imported from a specific source is unavailable due to, for example, a travel ban
- the method of performance has become impossible and no similar means of performance is available
If successful, your contract would be terminated and both parties would be able to recover the amount paid under the contract before it was frustrated after deducting the other’s expenses.
I have received a force majeure claim, what do I do?
- carefully review the precise wording of the force majeure clause to determine if Covid-19 or the event identified by the other party falls within the scope of the clause as a force majeure event
- determine whether there is a causal link between the force majeure event and the non-performance
- contact the other party to ask for evidence on the impact the force majeure event had on performance and the steps that have been undertaken to prevent or mitigate the consequences of the event
- request for regular updates from the other party on its effort to resume performance
- ensure the notice requirements and any time limits are complied with
- consider the implications of the force majeure claim on your other obligations owed to other parties
- if you’re satisfied, consider negotiating a written variation to the contract
*The information in this blog is correct at the time of publication is for general information only. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.