Force Majeure explained.

Ever since the beginning of the Covid-19 pandemic, there has been an increased number of disputes pertaining contractual obligations due to Force Majeure clauses in commercial contracts. There is however a lack of understanding in the application of Force Majeure clauses due to the novelty of the Covid-19 pandemic.

Force Majeure is derived from the French civil law which translates to “greater force”, often associated with an Act of God. This clause was inserted into commercial contracts to protect both parties should their contractual obligations become impossible to perform due to Force Majeure.

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An example of a boilerplate Force Majeure clause is as follows: –

  • war (whether declared or not), hostilities, invasion, act of foreign enemies, insurrection, revolution, rebellion, military or usurped power, civil war or acts of terrorism;
  • SARS, avian flu, swine flu, coronavirus, or any other pandemic, epidemic, plague or other outbreak of communicable disease as declared or defined by the World Health Organisation;
  • ionising radiation or contamination by radioactivity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel, radioactive toxic explosive, or other hazardous properties of any explosive nuclear assembly or nuclear components thereof;
  • pressure waves caused by aircraft or other aerial devices travelling, at sonic or supersonic speeds;
  • natural catastrophe including but not limited to earthquakes, floods, subterranean spontaneous combustion, or any operation of the forces of nature which could not reasonably have been expected; and
  • riot, commotion or disorders, criminal damage, sabotage, strike, lock out, labour unrest or other industrial disturbances (affecting the performance of this Agreement) which are not the fault either party, which causes, or can reasonably be expected to cause any party to fail to comply with its obligations.

Based on the boilerplate clauses, we can see the Force Majeure is an attempt to regulate the relationship of contractual parties should any of the events agreed to come to rise and creates an impossibility in performing the said contract.

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The application of Force Majeure is however not as simple as it seems, based on the case of INTAN PAYONG SDN BHD v GOH SAW CHAN SDN BHD [2005] 1 MLJ 311, the courts have laid down the principle in seeking to enforce a Force Majeure clause whereby:

“…It is trite that a party relying upon a force majeure clause must prove the facts bringing the case within the clause. He must therefore prove the occurrence of one of the events referred to in the clause and that he has been prevented, hindered or delayed, as that case may be from performing the contract by reason of the event. He must further prove that his non performance was due to circumstances beyond his control and that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequence (Chitty on Contracts (28th Edition) Vol 1 at 273-274)…”

[2005] 1 MLJ 311

Based on the principle laid out, there are 3 requirements in applying the Force Majeure clause:

  1. Occurrence of one of the events referred in the clause;
  2. Non-performance of obligation is due to circumstances beyond control; and
  3. No reasonable steps could have been taken to avoid or mitigate.

Therefore, it is pertinent to include all possible events that will make the performance of the contract impossible, otherwise, the said event will not be a ground to invoke Force Majeure. Similarly, although any of the events do occur, it does not automatically frustrate the contract, instead, the party that invokes the clause must also prove that no other steps could have been taken to avoid or mitigate it. Therein lies the problem with invoking the clause during this pandemic as government lockdowns are either not included in the clauses or it becomes very difficult to prove no other steps could be taken due to the novelty of the situation.

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Moving forward, commercial contracts are likely to change their approach of including Force Majeure simply as a boilerplate clause to perfect the agreements, the use of Force Majeure is likely to evolve to cater to these new situations that we never expected to face in our lifetime.


Kage is a content writer under Headliner by Newswav, a programme where content creators get to tell their unique stories through articles and at the same time monetize their content within the Newswav app.
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Kage
Author: Kage

Hoping to entertain someone with my thoughts.