Force Majeure – are you sure?

A force majeure event includes acts of God, natural disasters, national emergencies or acts of war and, generally, excuses a party from doing something that it was required to do under a contract.

In early March 2020, the World Health Organisation deemed the COVID-19 coronavirus outbreak a global pandemic, which triggered force majeure rights under millions of contracts and legal arrangements. As national quarantines, social distancing and export restrictions came into effect, supply chains were interrupted, goods and services were unable to be delivered and contractual obligations became unmet.

While the concept of force majeure has always existed within Australian law, it is of relevance only if a specific clause is included in a contract to give a party rights if a force majeure event occurs. Many businesses have been caught short during the COVID-19 period without force majeure clauses in their contracts where they have been unable to perform their obligations due to supply chain interruptions.

In a primary production context, force majeure mechanisms could assist:

• an exporter of grain to countries which refuse to accept cargo that cannot be fumigated
• a meat processor who is unable to transport cargo across quarantine lines
• a horticulturalist who is unable to meet consignment volumes due to a labor shortage for harvest

COVID-19 has put force majeure into new light when negotiating contracts reliant on supply chains domestically and abroad. An effective force majeure clause should deal with the risk of the unexpected. It might excuse both parties from their respective obligations until the force majeure event passes and the contract can be completed, or it might provide for more complex contingencies. Failure to address these issues could expose the party that cannot perform to liability to pay the other party’s damages and costs as a result of the force majeure event at a time when substitute markets for the goods or services are difficult to identify.

How can we help?

Thynne + Macartney’s lawyers are experts in the negotiation of commercial arrangements for the supply of goods and services across Australia and the world.