The devastating bushfires across Australia and the recent outbreak of the coronavirus internationally has impacted trade and commerce significantly, causing huge disruptions to business. In particular, the implementation of travel and shipping restrictions as a result of the coronavirus outbreak has resulted in parties being unable to fulfil their commercial contract obligations, such as supplying goods under a supply agreement.
So how are situations like this dealt with in commercial contracts?
Worried you’re in breach? Check the Force Majeure clause
The starting point in determining your contractual obligations is to check the ‘Force Majeure’ clause in your contract (assuming you have one).
Force Majeure means ‘superior force’ and is commonly referred to as an ‘act of god’. Force Majeure clauses are typically used to relieve the party in default from contractual remedies for breach of contract in instances where an unforeseen event, beyond a party’s control, interferes with the performance of a contract. These clauses can apply to events such as severe storms, earthquakes and epidemics. They sometimes also include events like wars, public disorders and actions by government agencies.
What is the scope of a Force Majeure clause?
If you’re attempting to rely on a Force Majeure clause, you should note the courts look to the express words of the contract and that there’s no one size fits all model. Therefore, it’s essential that clear language is used when outlining the types of events that are intended to be within the scope of the clause. General wording lacking specificity may render the clause inapplicable when a certain unforeseen event arises.
It’s also crucial to define what effect the relevant event must have on the contract to trigger the clause. For example, does it delay, suspend or discharge your contractual obligations? It’s also important to note that ‘impracticability of performance’ is generally not a sufficient level of disruption when relying on these kinds of clauses. This means that even if the specific event was stipulated in the clause and was beyond the control of the parties, if there were an alternative means of performing the contract, then it’s likely that the event would not trigger the Force Majeure clause.
How to protect yourself with a Force Majeure provision
If you’re concerned about how the recent bushfires and coronavirus outbreak impact your existing or future contractual arrangements, it’s critical to seek advice as to whether or not such disruptions trigger the Force Majeure provision in your contract.
If you’d like assistance in determining your level of exposure to such events, get in touch with BlueRock Law to speak with our experts.