COVID-19 has obviously been declared by the World Health Organisation as a pandemic and in Australia developments are escalating rapidly.
Covid-19 has obviously been declared by the World Health Organisation as a pandemic and in Australia developments are escalating rapidly. It has the potential to cause significant disruption to business not only around the world but also in our local communities. It is therefore important for businesses to review their contracts to identify force majeure clauses and what other contractual relief may be available.
Force majeure comes from the Latin meaning “superior force”. Contract definitions of force majeure commonly refer to:
- “acts of God” which have been considered by courts to cover hurricanes, floods and earthquakes;
- Global pandemic;
- Civil unrest; and
Force majeure clauses are common features of commercial contracts and are intended to suspend obligations and associated liabilities which are unable to be performed as a result of an event beyond the contemplation and control of the parties. Force majeure may provide a party with some relief from contractual obligations that it is unable to perform.
The meaning of force majeure however must be construed in the context of the specific contract as the concept arises as a feature of contract law and not pursuant to common law where it is not implied as a matter of law.
If there is any ambiguity in the definition of force majeure in the specific contract, the contra proferentum rule will apply unless the parties have expressly excluded it – this means that the clause will be interpreted against the interests of the party responsible for drafting the definition.
Force majeure may be triggered at the point in time when a party apprehends that it will be unable to undertake, continue or complete its contractual obligations because of a force majeure event.
Most force majeure clauses will not excuse non-performance but rather suspend performance for the duration of the force majeure event. Some contracts may provide the parties with rights of termination.
In the absence of a force majeure provision, a party to a contract will need to resort to the doctrine of “frustration” which provides for an automatic mutual discharge of the contract where performance is impossible. While frustration may assist, the remedy may be more restricted that that which a party may wish to negotiate by way of defining force majeure in a contract. South Australia has legislation which are intended to soften some of the limitations of the doctrine of frustration.
What you need to do
Given the current uncertainty, businesses may wish to consider the following steps to mitigate potentially negative implications:
- Consider which existing contracts may be impacted by closures or delays or where the other party may seek to terminate or suspend the contract;
- Seek information and invite communication with the other party to prepare as best you can for potential disruptions;
- Seek advice if you are unsure about whether a force majeure event applies to specific contracts you are a party to or what relief may be available;
- Consider how the risks associated with Covid-19 could be mitigated in the future if there was a future outbreak of similar nature.
If you have been impacted please contact us on 8523 8400 to arrange an appointment for a no obligation consultation with one of our experienced lawyers. Alternatively, send an email to firstname.lastname@example.org.