COVID – 19 – A “superior force” and the impact on contracts

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Our world is full of contracts. Contracts to go on holiday, to hire contractors and equipment, to provide venues for rugby games, and to build houses. Contracts to supply goods and services in commercial trade.

With the disruption of the Covid-19 pandemic, you may not be able to complete your contract. You may have a contract where all the benefits are now lost.

What are your rights if your contract has been impacted by Covid-19?

Force majeure

  • Many contracts contain a force majeure clause. Force majeure translates to “superior force” and this type of clause will often be triggered by specified events such as earthquakes, fires, floods. Sometimes a force majeure clause will expressly include a pandemic. Other times the definition will be vague and may simply refer to events “beyond the reasonable control” of a party or “acts of God”.
  • The wording of a force majeure clause is critical. These clauses are used so infrequently they are often drafted in simple terms and the protections may not extend to a Covid-19 induced events, such as the current Level 4 lockdown. In some contracts the parties might disagree as to whether force majeure is triggered by Covid-19.
  • If a force majeure clause has been triggered, what happens next will depend upon the wording in the clause. It may give a party the ability to terminate the contract. It may provide for no consequences if you cannot perform your contractual obligations. The clause may allow a party to delay performance.

Frustration

  • Some contracts do not contain a force majeure clause. If a contract has become impossible to perform, even without a force majeure clause you may be able to argue the contract has been “frustrated”.
  • The doctrine of frustration might apply if there is an event that makes performance of the contract impossible. There is a high threshold for frustration to apply and careful consideration of all circumstances is needed.

If there is no force majeure clause and the doctrine of frustration is not available (or difficult to argue) then your rights may be limited. It is important that you understand your rights accurately. If you wrongly refuse to perform a contract then the other party may have a claim against you.

Although you may not be able to change your existing contracts, we encourage you to take this opportunity to review your force majeure clauses for future events.

Please contact our team if you would like assistance with your contractual rights and obligations or to assist in a general review of contracts or terms.

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Kimberly Knox
Author

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