Common law force majeure

What does force majeure mean in a contract? What to know about force majeure clauses and contract law? What constitutes a force majeure or superior force? The term force majeure – the literal meaning of which is superior force – has its origins in French civil law. However, under common law (whether under English law or the law of another common law jurisdiction such as Australia) there is no doctrine of force majeure.

Instea the term force majeure is a convenient label used to refer to clauses which relieve a party from performance of its contractual obligations where that performance is impacted by events outside its control. The answer to that is it depends. The virus has been declared as a pandemic by the World Health Organisation and is causing economic chaos on an international scale never seen before, due to the closure of businesses and consequent disruption of global supply chains. On a local level it is disrupting retailers, restaurants, service providers such as taxi services and local businesses.

These disruptions may make it difficult for people and businesses to meet their obligations under contracts. There are specific circumstances and criteria that need to be met for ‘force majeure’ to be relied on to suspend obligations under a contract. Businesses should be careful to not simply rely on ‘force majeure’ to escape their contractual obligations. Doing so could result in specific performance or damages claims being brought against that party.

See full list on financialinstitutionslegalsnapshot. A force majeure is an act of God or man that is unforeseen and unforeseeable and out of the reasonable control of one or both of the parties to a contract, and which makes it objectively impossible for one or both of the parties to perform their obligations under the contract. If an agreement does not contain a force majeure clause, or if a force majeure clause in a contract does not name the unforeseen event that the parties wish to rely on, then the parties may be able to rely on the common law principle of ‘supervening impossibility of performance’ to suspend their obligations under the contract, provided that it has become objectively impossible for them to perform under the contract as a result of an unforeseeable and unavoidable event.

The impossibility must occur after the conclusion of the contract. South African doctrine of impossibility 1. These events must be unavoidable and make proper performance of the contract impossible and must not merely make performance more bu. The principal objective of a force majeure clause in a contract is to relax obligations and to set a limit to the strict liability imposed on a party to perform in terms of a contract in the event of certain circumstances arising, which prevent or have an effect on the party’s ability to perform. Parties often include time periods during which the contract will be suspended if a force majeure event occurs. This gives any party the right to elect to terminate the agreement unilaterally by way of notice to the other party should the force majeure event continue for longer than the set period.

This period will depend on the agreement between the parties and the nature of the obligation, the contractual performance and the prac. Even in such states, however, the terms of a force majeure clause—if one exists—are what govern, and many courts will decline to include a foreseeability element if the clause does not provide for one. The impracticability analysis may therefore vary between a force majeure clause and the common law doctrine.

Force majeure provisions in contracts exist in parallel to the common law doctrines of impossibility and frustration of purpose. When a contract has no force majeure clause , there still may be protection for the parties under those doctrines, but the exceptions may be narrower than those offered by more specific force majeure clauses. Force majeure events are usually defined as certain acts , events or circumstances beyond the control of the parties , for example , natural disasters or the outbreak of hostilities. A force majeure clause typically excuses one or both parties from performance of the contract in some way following the occurrence of such events. Most US states recognize common law doctrines such as “frustration” or “impossibility,” which may be invoked to excuse contract performance under certain circumstances.

But parties choosing to invoke these common law doctrines often face significant hurdles. Generally speaking, “impossibility” could include, for example, the death or incapacity of a person necessary to performance or the destruction of an irreplaceable good or component. Impossibility generally would not include events like the destruction of commutable inventory or inconvenience. In signatory nations, the United Nations Convention on Contracts for the International Sale of Goods (CISG) governs contracts for the sale of commercial goods between parties in different countries (that is, unless the parties have expressly waived its applicability). Article of the CISG may excuse nonperformance that from an unforeseeable impediment beyond a party’s control that it could not have overcome.

Article of the Uniform Commercial Code (UCC) may also excuse performance where performance is rendered impracticable by either (1) the occurrence of an event “the nonoccurrence of which was a basic assumption on which the contract was made” or (2) good faith compliance with foreign or domestic government regulation. This “impracticability” standard can be less rigid and more easily demonstrated than common law “impossibility” because it does not require a showing that performance is objectively impossible. Instea impracticability will excuse performance where performance is theoretically possible but prohibitively expensive.

US courts have hel however, that the contract’s terms may alter the UCC’s applicability and that the mutual intent of the parties at the time of contracting controls. Some contracts expressly allocate risk based on events that could result in a material adverse change (MAC) or material adverse effect (MAE) on the business or its prospects. For example, the parties may provide in their force majeure clause that performa. The occurrence of a MAC or MAE may give the invoking party the right to avoid performance or even terminate the contract. With respect to COVID-or another crisis event, a MAC or MAE might include travel restrictions, supply chain disruptions or shortages, lock-downs and quarantines, all of which have the potential to materially affect a company’s commercial operations or long-term prospects, at least while the crisis is ongoing.

Companies should take proactive steps to mitigate their risk triggered by a potential force majeure event, even if their commercial agreements lack an express force majeure clause. As noted above, the existence (or absence) of a force majeure clause is not the end of the inquiry. As explained here and in prior posts, there may be other avenues for a company (or its counterparty) to seek relief from contractual obligations due to a force majeure event, including remedies at common law , under the CISG or Article of the UCC. If your commercial agreement has no force majeure provision, consider taking the following steps: 1. Carefully review the options available under the US state law governing your contract. Evaluate whether the non-performing party will have to demonstrate impossibility of performance or mere impracticability.

Likewise, if frustration is a recognized doctrine in the relevant state, consider whether the purpose underlying the agreement has been frustrated for both p. In order to avoid the potential ambiguity of the common law in these circumstances, most well advised contracts contain a force majeure clause, which deals with the consequences of an event causing performance to become impossible. The issue now is interpreting the scope of the particular force majeure clause the parties agreed to (if any). This should make it easy to figure out if a particular occurrence qualifies as a force majeure event. In common law jurisdictions, the question of whether a valid force majeure event exists is a matter of drafting and needs to be sufficiently defined and detailed to be enforceable. Typically, the affected party is excused from relevant non-performance while the force majeure event (or its effects) persists.

Force majeure is a concept widely recognised under the domestic laws (civil codes) of civil law jurisdictions where it constitutes an absolute excuse on the part of the performance debtor of all liability for non-performance of its obligations to the extent that it even operates. Force Majeure under National Law – Civil and Common Law views. It then dispenses with the landlord’s arguments. A party’s ability to claim relief for a force majeure event therefore depends upon the terms of the contract, and the force majeure provision in particular.

A recent illustration concerning the interpretation of a force majeure clause under English law can be found in the case of Thames Valley Power Limited v Total Gas. Along the same lines, parties may include a force majeure provision in their contract excusing performance in the event of specified occurrences. Hence, to understand the proper scope of rights and remedies.