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Force Majeure Clauses and Frustration: Why the COVID-19 pandemic is a wake-up call

By Shakvaan Wijetunga.


What is a force majeure clause?

A force majeure clause is a method of allocating the risk of a disruptive event. It is a broad catch-all provision whereby the parties list categories or specific instances of otherwise frustrating events and specify which party or parties bear the risk of the event occurring.

The clause can grant the option to vary, suspend or terminate the contract to one or more of the parties. [1]


No force majeure clause? Use the doctrine of frustration

A party may invoke the doctrine of frustration when the sort of event triggering a force majeure clause arises, and there is no provision for the course of conduct to follow, that is, there is no force majeure clause.

The doctrine of frustration is a common law doctrine that discharges the parties to a contract from future performance when an unforeseen event (“act of God”) presents itself without default of either party, either rendering the contract impossible or its essence radically different from that which was agreed. [2]


The approach to frustration is a question of construction, [3] with the courts’ reluctance to absolve parties of their obligations traceable to the 17th century: parties who have agreed to bind themselves ought not to be readily discharged from their duties because they failed to provide against an accident. [4]


Tempering the uncertainty surrounding the invocation of frustration

With the doctrine of frustration being an exercise in gap-filling, express terms providing for a robust and comprehensive list of frustration events would remove the need for the principle to operate.


These express terms are force majeure clauses.


General comments on force majeure clauses in light of the pandemic

A pandemic exemplifies an interruption susceptible of being overlooked at the drafting stage. Express provisions carefully crafted would avoid the need for litigation in such a circumstance.

It is opportune for parties to reassess the safeguards in place to protect themselves from misfortune, and not only ensure the security of their positions during the current affliction but also in preparation for any future disaster.

Interpreting force majeure clauses

The law regarding the construction of force majeure clauses comes from a landmark decision of the Privy Council on an appeal from the Court of Appeal of Hong Kong. [5]


The force majeure clause from that case appears in the following terms:


Force majeure: Should [the sellers] fail to deliver the contracted goods or effect the shipment in time by reason of war, flood, fire, storm, heavy snow or any other causes beyond their control, the time of shipment might be duly extended, or alternatively a part/whole of the contract might be cancelled, but [the sellers have] to furnish [the buyers] with a certificate issued by China Council for the Promotion of International Trade (‘C.C.P.I.T.’) or an independent and competent Chinese authority attesting such event or events. [6]

Note that the sellers (the appellants) are the party seeking to avoid liability. The force majeure was a severe drought which devastated the area from which the cotton to be sold to the buyers (the respondents) originated.


The construction relied upon by the Privy Council required there to exist a tripartite state of affairs to enliven the clause’s operation successfully. The three limbs are:

  1. There had been a stipulated force majeure event at the relevant time;

  2. This event had adversely affected their (i.e. the sellers’) ability to supply the goods; and

  3. The sellers could not overcome these adverse effects by obtaining the goods from another source (other than the one provided for in the contract) while still matching the contractual requirements. [7]

The same process of investigation applies to both invoking the doctrine of frustration and activating a force majeure clause.


The Privy Council deemed the focus of construction as being on the requirement for a certificate to be issued. [8] It is this stipulation which distinguishes the situation created by a force majeure clause from the case instituted by reliance on frustration.


A force majeure clause clarifies the parties’ obligations, hence the requirement that a certificate is a minimum hurdle for the operation of the clause.


It is this sort of unambiguously prescribed course of conduct that explains the efficacy of express terms dealing with frustration. Nevertheless, the parties may still, as the following will show, express requirements with more clarity. When being asked to determine compliance with the clause, it appears the courts shall be satisfied with a low threshold of proof. However, they need more than the mere production of a vague document and nothing else. [9]


Instead, producing a certificate involved a twofold task for the sellers:

  1. To prove that it was a stipulated event which had caused them to fail to perform their duties; and

  2. To produce a certificate in the prescribed form.

With a choice of three possible constructions of what the twofold task entailed, the Privy Council chose the one placing the lightest burden on the sellers. [10]


The sellers, under the Privy Council’s interpretation, were only required to issue a document certifying the first limb of the tripartite state of affairs. [11] The alternatives would have required, respectively, certification of all three components, or certification of only two, permitting the omission of impossibility.


As a matter of construction, the Privy Council found that the language of the force majeure clause merely required the certificate (document) to be added to the tripartite state of affairs. [12] The certificate did not need to cover the tripartite state of affairs. To require the certificate to attest to all three limbs would be of no practical value and would entail a semi-judicial investigation. [13]


Attesting to not only the existence of force majeure but also to its effects on a transaction is an inquiry into complex facts that would need to be conducted again at the litigation stage. [14]


In short, only the force majeure needs to be identified by the certificate (which was not a substitute for proof of the force majeure).


Where the certificate attesting to all three limbs to the tripartite state of affairs would have practical value is in the event of a challenge to the party relying on it, [15] allaying suspicions that the relying party has fabricated excuses to avoid performance. Furthermore, an independent authority would be in a better position than an entity after the fact to conclude a bona fide, contemporaneous and accurate assessment of the conditions and force majeure at the appropriate time and place.


Extractable from the Privy Council’s finding is that, since multiple constructions of the impugned clause were available, careful drafting is imperative.


Less authoritative than the Privy Council, the Ontario Court of Appeal addressed whether a specific force majeure clause refers to occurrences suffered only by one party or to those suffered by each party. [16] The business relationship between the parties was the supply and distribution of natural gas to the buyer’s customers (under separate agreements).


This case concerns a force majeure clause containing latent ambiguity. Notwithstanding, the Court of Appeal prohibited extrinsic evidence, affirming that a clause which is merely difficult to interpret is not necessarily ambiguous.


The clause reads as follows:


XI FORCE MAJEURE

In the event of either Buyer or Seller being rendered unable, wholly or in part, by force majeure to perform or comply with any obligation or condition hereof or any gas sales contract into which these General Terms and Conditions are incorporated, such party shall give notice and full particulars of such force majeure in writing or by telegraph to the other party as soon as possible after the occurrence of the cause relied on, and the obligations of the party giving such notice, other than obligations to make payments of money then due, so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused but for no longer period, and such cause shall as far as possible be remedied with all reasonable dispatch. The term “force majeure” as used herein shall mean acts of God, strikes, lock-outs or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of governments and people, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, temporary failure of gas supply, inability to obtain materials, supplies, permits or labour, any laws, orders, rules, regulations, acts or restraints of any governmental body or authority, civil or military, any act or omission (including failure to deliver gas) of a supplier of gas to, or a transporter of gas to or for, Seller which is excused by any event or occurrence of the character herein defined as constituting force majeure, any act or omission by parties not controlled by the party having the difficulty and any other similar causes not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome.


A force majeure clause need not be lengthy to be adequate.

The buyer, in this case, is the respondent and the seller the appellant.


The alleged force majeure was a series of strikes and an explosion within the space of three years, all of which affected some of the buyer’s large customers (rather than the buyer itself). These events led to the buyer selling less gas to its customers during those years. (The word “strike” was attributed a broad meaning to include labour disputes).


Latent ambiguity emanates from the clause. Whilst each word is to be given its dictionary meaning; it is unclear whether the events occur solely on the seller’s part or refer to events that also happen on the buyer’s side.


The parties agreed to break the clause down into four segments for construction:

  1. The occurrences rendering the buyer or seller unable, wholly or in part, to perform an obligation;

  2. The failure of a supplier or transporter to

  3. deliver gas to the seller;

  4. An act or omission by parties not controlled by the party having the difficulty; and

  5. Other similar causes not within the control or scope of prevention of the party claiming suspension.

The ambiguity lies in the second segment. It expressly excludes the seller from liability if met with force majeure, but no equivalent appears excluding the buyer from same. Such a specific clause, if appearing for one party, should also appear for the other, unless the parties’ specific intention was only to endow the seller with that protection.


Acknowledging that without gas from the seller/supplier, the buyer cannot fulfil its contracts with its customers, creates an assumption that an express exclusion of the seller from liability should extend to the buyer.


Given the nature of the relationship between the buyer and seller, the seller has no control over the contracts the buyer enters. The buyer, to protect itself against misfortune, has other courses of action available to it.


Some of these courses of action include applying to the public body controlling it to increase the rates charged to customers or containing in its contracts with those customers mandatory minimum payments, despite any force majeure.


The parties must limit the operation of a force majeure clause to events of force majeure besetting the parties unless the parties have agreed to an express widening of the scope of its application.


Force majeure on the system of the buyer’s customers is not equal to force majeure on the buyer.


The Court of Appeal applied the express and unambiguous terms of the other three segments.


To reconcile the approaches taken by the Privy Council and Ontario Court of Appeal. When a force majeure clause makes express provisions, a court will give effect to those express provisions, even if they may, prima facie, seem to be overlooking one party’s susceptibility to risk.


Therefore, if the clause permits a minimum tender in satisfaction of its threshold or permits only one party to benefit from the exclusion of liability, a court will give full weight to that permission. The purpose behind force majeure clauses being to clarify obligations in times of difficulty can never override their express words.

Accordingly, it is essential to objectively clarify all risk apportionment, exclusion clauses and requisite thresholds to effect subjective intentions.


Force majeure and COVID-19

While some case law refers to the effects of COVID-19, few courts have dealt directly with the pandemic’s impact on an industry, apart from Canada’s Federal Court of Appeal. [17] The factual matrix of that case involves the Canadian Transportation Agency making public statements on its website, seeking to strike a balance between airline customer protection and airlines’ operational realities.

The statements suggest it would be reasonable for airlines to provide affected passengers with vouchers or credits for future travel rather than reimbursement. [18] Air Passenger Rights, an advocacy group, asserts that the CTA’s statements are likely to mislead passengers concerning their rights. [19]


COVID-19 is acknowledged undisputedly as a frustrating event and force majeure. [20]


The Court dismissed APR’s assertions. They accorded a level of leeway to non-binding administrative decisions in their approach to reaching pandemic-related solutions to stressful situations. Provided those solutions, such as vouchers, do not expire in an unreasonably short time. [21]


Furthermore, the Court conceded that these administrative decisions might have the effect of potential harm to customers, for example, who are not seeking credits but monetary reimbursement.


Yet, at any rate, these adverse effects would not reach the standard of irreparable harm required to delineate standing for a serious (arguable) case. [22]


What this case shows is that COVID-19, or any pandemic forcing the curtailment of industry, classifies as force majeure warranting creative and urgent solutions to be quickly made that may not wholly satisfy all parties, but, on balance, adequately address all interests.


Yet, at any rate, these adverse effects would not reach the standard of irreparable harm required to delineate standing for a serious (arguable) case. [22]


What this case shows is that COVID-19, or any pandemic forcing the curtailment of industry, classifies as force majeure warranting creative and urgent solutions to be quickly made that may not wholly satisfy all parties, but, on balance, adequately address all interests.


The New Zealand High Court similarly recognised COVID-19 lockdowns as an unforeseen event which cloaked the performance of contractual duties in uncertainty and delay. [23] The Court accordingly made allowances for the speculative but imminent losses. [24]


Although not the main issue, it appeared COVID-19 fell within the scope of the force majeure clause, which reads:


“If MPD is not able to complete the enabling works (other than the sewerage works under clause 1.4) by 30 April 2019 or any extended date permitted under this clause (Enabling Works Sunset Date) then GCD is entitled to instruct and engage a third party contractor to complete the enabling works at market competitive prices, at the cost of MPD provided that GCD must act reasonably, in good faith and work collaboratively with MPD before engaging the third party contractor and have regard to the nature and extent of the remaining incomplete works, the reasons for the delay, whether or not MPD has the right to terminate its works contract with its contractor and the need to practically transition works between MPD’s contractor and the third party contractor. GCD may pay for such costs on behalf of MPD under this clause and any payments made shall be a debt from MPD to GCD City and shall be paid by MPD to GCD within 10 working days of GCD issuing a tax invoice to MPD.


Where there is any delay in completing the enabling works as a result of any force majeure which is beyond the control of MPD (including adverse weather conditions, strikes, lockouts, unavailability of materials, fire, earthquake, flood, explosion, storm, tempest, riot or civil commotion) then, in that case, the Enabling Work Sunset Date will be extended by a reasonable period of time which takes into consideration the cause of delay.” [25]


Under this clause did the parties agree to a variation? [26]


As expected, COVID-19 merely causing delays did not amount to frustration, nor was the possibility even raised in the judgement.


How to draft a reasonable force majeure clause?

Considering the dicta of the Privy Council and Ontario Court of Appeal, it follows that drafting a force majeure clause should be done as follows:

  1. Allocate risk clearly and precisely;

  2. Explain how the parties must evince their invocation of the clause;

  3. Specify the process and details required to satisfy reliance upon the clause;

  4. Outline the standard of severity required of the misfortune to enliven the clause. There are clear benefits in express terms dealing with frustration. Absurd results may arise from the doctrine’s invocation setting a limit lower than impossibility. The enlivening standard ought to be nearer to hindrance than to absolute invalidity. Business interests, commercial purposes and envisaged expectations should be protected more carefully by a clause permitting termination upon an indication that circumstances are changing than by waiting until after the damage to invoke a strict doctrine;

  5. Set out the force majeure circumstances which would and would not permit termination;

  6. Frame all lists as non-exhaustive and inclusive or exemplary of a potentially much longer list;

  7. Use sweeping-up to ensure interpretation loopholes would not exclude rare or unique events. The parties should leave no room for inconsistent, competing interpretations;

  8. In the interests of brevity and ease of reading, prioritise classes and categories of force majeure over lists of individual events. Account for all desired circumstances;

  9. Consider particular circumstances and frustrating events uniquely harmful to the industry.

COVID-19 is a wake-up call because it is an example of a rare occurrence – a pandemic – that boilerplate force majeure clauses would not have identified.

Given its grave impact on commerce, it is vital that for the future, rare occurrences that are currently unforeseeable, as COVID-19 once was, and therefore futile to attempt to identify, have as little impact as possible.


Mistakes in drafting may be difficult to rectify, in light of the parol evidence rule. [27]


Notes: [1] eg Yara Nipro P/L v Interfert Australia P/L [2010] QCA 128, [26].

[2] Davis Contractors Ltd v Fareham UDC [1956] AC 696, 729; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 357.

[3] See Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154, 184.

[4] Paradine v Jane (1647) Aleyn 26, 27.

[5] Hoecheong Products Co Ltd v Cargill Hong Kong Ltd [1995] 1 WLR 404, 408 (‘Hoecheong Products’).

[6] Hoecheong Products [1995] 1 WLR 404, 406.

[7] Hoecheong Products [1995] 1 WLR 404, 409.

[8] Hoecheong Products [1995] 1 WLR 404, 409-410.

[9] Hoecheong Products [1995] 1 WLR 404, 410.

[10] Hoecheong Products [1995] 1 WLR 404, 410.

[11] Hoecheong Products [1995] 1 WLR 404, 410.

[12] Hoecheong Products [1995] 1 WLR 404, 410.

[13] Hoecheong Products [1995] 1 WLR 404, 405.

[14] Hoecheong Products [1995] 1 WLR 404, 411.

[15] Hoecheong Products [1995] 1 WLR 404, 410.

[16] Transcanada Pipelines Ltd v Northern and Central Gas Corp Ltd (1983) 146 DLR (3rd) 293. (Pinpoints unavailable for this case)

[17] Air Passengers Rights v Canada (Transportation Agency) [2020] FCJ No 630.

[18] Air Passengers Rights v Canada (Transportation Agency) [2020] FCJ No 630, [5]-[7].

[19] Air Passengers Rights v Canada (Transportation Agency) [2020] FCJ No 630, [3].

[20] Air Passengers Rights v Canada (Transportation Agency) [2020] FCJ No 630, [10].

[21] Air Passengers Rights v Canada (Transportation Agency) [2020] FCJ No 630, [21], [25].

[22] Air Passengers Rights v Canada (Transportation Agency) [2020] FCJ No 630, [31].

[23] Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, [13], [51].

[24] Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, [58].

[25] Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, [7].

[26] Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, [9].

[27] Inglis v John Buttery & Co (1878) 3 App Cas 552, 577; Gordon v Macgregor (1909) 8 CLR 316, 323; At the following URL is a self-service style of generating tailored force majeure clauses: https://coda.io/@denis-potemkin/force-majeure-clause-generator-2-0/generator-1

About the Author

Shakvaan Wijetunga is a law student at the University of Sydney, combining his LLB with a BA where he studies Latin and majors in Classical Greek.

2020’s conclusion will see the completion of his third year of studies, graduation from his BA and passage into the penultimate year of his LLB.


Since early 2018, Shakvaan has worked at several law firms, currently serving as a Virtual Intern with Blue Ocean Law Group℠, whereby he has collectively gained experience in matters of corporate + commercial law, as well as civil litigation.


Shakvaan is also a part-time musician, playing bass guitar in an internationally touring band while producing and performing as part of an electronic music project.



#ShakvaanWijetunga #forcemajeure #riskallocation #COVID #legal

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