Considering the COVID-19 outbreak and the climate emergency crisis, many building design businesses are examining their contracts to look for ‘crisis ready’ clauses and loopholes.
This intensified scrutiny has cast a special spotlight on force majeure, frustration and termination for convenience clauses, as businesses configure action plans in the event that they are unable to fulfill contractual obligations due to recent bushfires, floods and the global COVID-19 emergency.
A force majeure (which translates to mean ‘superior force’) clause permits one or both contractual parties to halt contractual activities in the wake of a pre-defined event.
If executed successfully, the party will not be held liable for not meeting its contractual obligations. It might also be conducive to termination right, when the force majeure event progresses for an extended interval.
A force majeure event could be an act of God, war, riot or invasion, national emergency, government action including strikes, terrorism or the imposition of an embargo, or extreme weather situations such as bushfires or severe flooding. The clause might cover epidemics or pandemics, which would include COVID-19—now designated as a WHO declared pandemic.
Yet shifts in economic circumstances are generally excluded from this clause, meaning that delays or stoppages caused by disrupted global supply chains as the result of a natural event, as opposed to a direct cause, may be excluded.
The true scope and impact of force majeure clauses will vary by contract.
The common law doctrine of frustration may come into play in the absence of a force majeure clause, or if force majeure proves ineffective.
Frustration comes into play when a contract is impossible to fulfill due to an unforeseen event. Yet frustration is not easy to prove, as it calls upon parties to prove that they were unable to foresee radically altered circumstances.
The performance of a contract becoming more pricey or complicated is generally not enough to prove frustration.
If a contract is international in scope, including parties across jurisdictions, parties involved should look to the governing law clause.
This is vital when the contract lacks a force majeure clause, as some jurisdictions figure force majeure into the contract when it lacks a specific term.
As per Australian law, force majeure clauses will not be implied in the absence of an express clause; other jurisdictions do things differently.
Finally, a party may bear a right to unilaterally vary a contract, suspend contract performance in some situations, or depend on a termination for convenience clause.
Ultimately, legal remedies in these cases will rely on contract wording and the clauses available. For further guidance, read the contract carefully and consult a corporate lawyer for effective solutions to a complicated problem.