Since the start of the COVID-19 pandemic, the various Australian State and Territory economies have faced unprecedented disruption, uncertainty and periods of lockdown. Throughout 2020 and early 2021, NSW was hailed as the ‘gold standard’ of pandemic response. The majority of its businesses, and contractual relationships, survived the initial onslaught and rebounded strongly. However, COVID-19’s delta variant, which remains stubbornly prevalent across large swathes of Sydney, and has recently moved into wider regional NSW, has hit NSW businesses with a greater and often devastating impact.
We have been assisting a number of our clients with their building and construction, hospitality, fitness & sporting and personal services contracts, to understand what is a Force Majeure event and how does a Force Majeure clause work.
We explain below why it is vital to understand, respond to, or possibly trigger, a Force Majeure clause.
Force Majeure – A Contractual Clause
A Force Majeure Event is an unforeseeable event which, when triggered, prevents a party to a contract from performing its obligations. Contracting parties generally account for a Force Majeure Event by drafting a Force Majeure Clause within their contracts. The validity of a claim for Force Majeure will generally be determined by three main factors:
- The objective terms and conditions of a contract; and
- The subjective intentions and knowledge of the parties to a contract; and
- The conduct of the party asserting Force Majeure.
Typical Force Majeure Clauses
General Force Majeure Clause
“A Force Majeure Event will include any unforeseeable event beyond either parties’ control, which having arisen, is unavoidable and prevents a party from performing its obligations under the contract, provided such event is not attributable to the conduct of either party to the contract”.
Specific Force Majeure Clause
“A Force Majeure Event will include any of the following: Act of God, explosion, riots, war, act of terrorism, civil unrest, Government order, pandemic, epidemic, event of radioactivity, industrial dispute or trade embargo which prevents a party from performing its obligations under the contract, provided such event is not able to be overcome and is not attributable to either party to the contract”.
Successfully Arguing a Force Majeure Event
Attempting to successfully argue that a Force Majeure Event has occurred, thus alleviating a party’s contractual obligations, is challenging, and requires:
A legal analysis of the wording of the Force Majeure Clause; and
Cogent application of the Force Majeure Clause to the specific circumstances, in accordance with intention of the parties, under the contract.
A successful argument in favour of a Force Majeure Event will go beyond the supervening event itself (e.g. a Government mandate closing down construction sites), and will address the respective conduct of the contracting parties and the purpose of the contract itself in the face of the proposed Force Majeure Event.
The Force Majeure Check-list
The ‘Force Majeure’ clause
Must be drafted into the terms of the contract. May be defined by way of an exhaustive list or described generally and left to interpretation.
Impossibility
Performance of the contract must be rendered impossible (either indefinitely or for the relevant duration of the Force Majeure Event).
Notice
The party seeking to exercise the Force Majeure clause must give notice to the other party within a reasonable time after the proposed Force Majeure Event has occurred.
Control
The Force Majeure Event must fall outside of either parties’ control.
Foreseeability/Knowledge
Generally, the Force Majeure Event must not have been a reasonably foreseeable event and/or within the reasonable knowledge of either party at the time the contract was entered into.
Mitigation
The party seeking to exercise the clause must prove that the Force Majeure Event cannot be mitigated. Is performance impossible, or is it simply more difficult, less efficient and/or more expensive?
Causation
There must be a sufficient causal link between:
- The proposed Force Majeure Event; and
- The impossibility of performance of the contract.
Is the Force Majeure Event attributable to either party to the contract?
Penalties or Costs
If a Force Majeure Event is established, are there ancillary penalties or costs for delay, or non-performance, of the contract?
Given the serious repercussions of a Force Majeure Event, it is often assumed that any attempt to exercise a Force Majeure clause will be resisted and opposed by the other contracting party.
However, if disputed, the Court will determine the Force Majeure Event on the terms and substance of the contract, the subjective intentions and knowledge of the parties at the time the contract was entered into and the conduct of the party claiming relief by way of Force Majeure.
For further information or should you require any assistance, please contact John Fairgray (Partner) jfairgray@bbwlaw.com.au, Balveen Saini (Senior Associate) bsaini@bbwlaw.com.au or Nicholas O'Connor (Solicitor) noconnor@bbwlaw.com.au or call (02) 9210 9100.