The coronavirus pandemic is making it increasingly difficult for businesses to deliver products and services. Here, your contract might be useful. Check if it has a ‘Force Majeure’ included.

Force Majeure clauses acknowledge that you might not be able to deliver or perform your contractual obligations in circumstances that are beyond your control. However, even if you have such a clause in your contract, it may not apply for the coronavirus. This article explains:

  • what a Force Majeure clause is; and
  • whether it can help you.

What is Force Majeure?

Force Majeure is an unexpected event that is:

  • out of your control; and 
  • out of the control of other parties performing their part of the contract.

Therefore in some circumstances, you may not need to deliver on your contractual obligations due to a Force Majeure event. 

What Is Included in a Force Majeure Clause?

Force Majeure clauses vary in terms of length and detail. More detailed Force Majeure clauses include a list of events considered beyond your control, such as:

  • cyber warfare, cyber attacks, ransomware attacks or cyber-sabotage;
  • war, hostilities (whether war is declared or not), invasions, acts of foreign enemies, civil war, sabotage or piracy;
  • rebellion, terrorism, revolution, insurrection, military or usurped power, riots, civil
  • commotion or disorder;
  • operation of the forces of nature such as earthquakes, hurricanes, lightning, typhoons or
  • volcanic activity;
  • outbreaks of disease, epidemics or quarantine; and
  • acts of government authority, whether lawful or unlawful.

Force Majeure clauses may also outline the type of behaviour expected in order to be excused from liability or failure to perform. For example:

  • making a diligent effort to perform your obligations or to alleviate the delay; and
  • providing written notification as quickly as possible, including the nature and extent of the delay caused by the Force Majeure event. 

Some Force Majeure clauses will even define how long the event must go on for before the agreement can be terminated. For instance: 

In the event that a Force Majeure Event continues for more than 30 days, either Party may terminate this agreement by giving no less than 10 days written notice.

In Australia, Force Majeure clauses are not implied. This means that if they are not in the contract, you cannot use Force Majeure as a reason to not deliver or perform. 

Does Coronavirus Fit Into the Definition of Force Majeure? 

It is extremely unlikely that a Force Majeure clause drafted before the outbreak would explicitly mention “coronavirus” as a trigger; however, “epidemics”, “pandemics”, “acts of government authority” or “work stoppages” might be included.

However, it is very important to work out exactly what event has made the performance of the contract impossible. 

For example, you may not be able to provide your services as events with more than 500 people have been banned by the government. Here, the trigger is not really the Coronavirus outbreak, but rather the new government regulation.

To rely on Force Majeure, depending on what’s in your contract, you usually need to prove that the event:

  • is not one that you or the other parties could have foreseen when you were negotiating the contract; and
  • that the event is beyond everyone’s control. 

What Happens Next?

The Force Majeure clause usually sets out what the parties do next. You may need to:

  • notify the other party;
  • mitigate your losses; and
  • renegotiate the contract.

You may also have the right to extend the time required to fulfil your obligations or to terminate the contract. This will depend on how the clause is worded.

What if There Is No Force Majeure Clause?

Sometimes a Force Majeure clause is not long, detailed and obvious. We recommend having your contract checked for a “hidden” Force Majeure clause. 

If you do not have a Force Majeure clause in your contract, you can consider whether the contract has been ‘frustrated’. This means that you or other parties to the contract are unable to perform your obligations because the circumstances in which you are operating are very different to what you all had in mind when you agreed to the contract. 

Key Takeaways

It is important to understand your rights and obligations in light of the Coronavirus pandemic. If you or a supplier is having difficulty providing a product or service in the current environment, confirm:

  • if your contract includes a Force Majeure clause; and 
  • how it defines events that are out of your control. 

If no such clause exists, there may be other legal options available to you. 

If you have any questions about Force Majeure clauses and your contract, please call us on 1300 544 755 or fill out the form below and one of LegalVision’s contract lawyers will be in touch.

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