A Guide To Force Majeure Clauses In Different Jurisdictions
| Published date | 10 July 2020 |
| Subject Matter | Law Department Performance, Coronavirus (COVID-19), Performance, Government Measures, Litigation, Contracts and Force Majeure |
| Law Firm | S.S. Rana & Co. Advocates |
| Author | Ms Tulip De and Vibhuti Vasisth |
The present pandemic has triggered a range of medical, social and economic consequences around the world. The effects on commerce have turned out to be extremely dramatic. One of the most emerging and frequently asked question is the relating to force majeure clauses in contracts.
The law relating to force majeure differs from one country to another. How and when should one be serving a force majeure notice What are the available remedies? Whether there exists any other contractual remedy, such as frustration of a contract in a particular jurisdiction or not, and so on. This article provides for some preliminary advice on these issues, among others, across various jurisdictions around the world.
AUSTRALIA
- Whether force majeure is a recognised concept?
In Australia, force majeure would only be available if it is provided for in a given contract. It does not fall under the general law principle and is typically defined as an event which is beyond a party's control or beyond reasonable control. The purpose of a force majeure clause is to relieve a party of its liability for its inability to perform its contractual obligations due to a force majeure event.
- How can one avail a force majeure remedy?
Force Majeure is only available if it is specified in a Contract.
- What are the essential requirements to claim force majeure?
The general answer is, it depends on the force majeure clause since there are many different forms of it. However, a party willing to rely upon a force majeure event would be required to notify the opposite party of the force majeure event, the nature and cause of the event, its foreseeable duration, the obligations that have been affected, the means proposed to be adopted so as to overcome the effects of such an event and actions that the affected persons have taken or propose to take so as to overcome the force majeure effects.
A party wishing to claim force majeure must also show that it attempted to mitigate the effect(s) of the event on its performance of the contract and that the event could not have been avoided or overcome despite having taken reasonable measures.
- What is the effect of a force majeure certificate issued by a government body?
Force majeure certificates are not issued by Australian Governmental Bodies. In a contract under the Australian law, a certificate issued by a foreign governmental body may work as an evidence that a force majeure event has taken place, but it would not be conclusive unless so provided for, in the given contract between the parties.
- What are the available remedies in case of a force majeure event?
The available remedies in case of a force majeure event are those that are specified in the contract. They may include, but are not limited to: suspension of a parties' obligations until the event has ceased to prevent performance of such obligations extension of time in which performance of a contract is required termination by either or both the parties, if the suspension has continued for a period exceeding a prescribed time-frame.
Clauses more often provide that a force majeure event would not relieve a party from its obligation to pay money.
- Are there any risks associated with an incorrect claim?
Certain risks, such as breach or repudiation of the contract with additional risks of damages, termination, an obligation of specific performance, other contractual remedies, etc., may follow as a consequence of an incorrect claim.
BRAZIL
- Whether force majeure is a recognised concept?
Under the Brazilian Law, force majeure is a recognized concept It is defined under the Brazilian Civil Code, Article 393.
"393.The debtor is not liable for losses resulting from a fortuitous event or force majeure, unless he has expressly agreed to be liable therefrom.
Sole paragraph. A fortuitous event or force majeure is an inevitable event, the effects of which were not possible to avoid or prevent."
- How can one avail a force majeure remedy, is it available only when specified in the Contract?
According to the Civil Code, the force majeure would result in the exemption from liability of the debtor even if it has not been specified in a contract, unless the said debtor was already in default at the time the event occurred or in case the said debtor-party had expressly assumed the force majeure risk in the contract.
- What are the essential requirements to claim force majeure?
Where there lies no provision of a force majeure clause in the contract, the Brazilian Law does not prescribe for any key requirements to claim the same. However, the obligation to notify the events of force majeure have been considered as fair and necessary, according to the principle of good faith and trust.
Further, where force majeure is provided in a contract, the key requirements would solely depend upon the wordings and proper interpretation of the concerned clause.
- What is the effect of a force majeure certificate issued by a government body?
Under the Brazilian Law, there exists no prescription for any kind of force majeure certificate, and thus, this issue is not relevant for contracts that are subject to the said Law.
- What are the available remedies in case of a force majeure event?
The following remedies are available in cases where force majeure is not provided in a contract and if a party is able to rely upon force majeure:
- In case of a temporary event, the suspension of the contractual obligations and the exemptions of the liabilities during the relevant period;
- In case of a permanent and/ or irreversible event, the exemption of liability and eventually the termination of the contract without being responsible for the damages resulting from the force majeure event.
When a force majeure clause is provided under a contract and a party wishes to rely on it, the remedies available to the party depends upon the wordings of the force majeure clause, such as:
- That the affected obligations may be temporarily suspended during the period where the force majeure event operates;
- That either or both the parties may become entitled to exercise their right to terminate the contractual relationship;
- That the contract may become automatically discharged, etc.
- Are there any risks associated with an incorrect claim?
A major risk associated with an incorrect claim is that a party believes it is relieved from its contractual performance (either temporarily or permanently) in circumstances where it is erroneous to hold such a belief. In such circumstances, the party wrongly relying on force majeure would leave itself exposed to a claim for breach of its contractual obligations and the Counterparty may even seek potentially significant damages as a consequence of the same.
CHINA
- Whether force majeure is a recognised concept?
According to the General Rules of the Civil Law of the People's Republic of China1 and the Contractual Laws of the People's Republic of China2, force majeure is a documented concept which refers to any objective-circumstance which can be termed as unforeseeable, unavoidable and insurmountable.
- How can one avail a force majeure remedy, is it available only when specified in the Contract?
Since force majeure is a recognized and collated concept under the People's Republic of China law, the terms of the contract only define whether a specified event, if occurs, would constitute a force majeure. For instance, if the contracting parties agree that the manifestation of a threatening infectious disease would constitute a force majeure event, then the present outbreak of the coronavirus would also qualify as such.
- What are the essential requirements to claim force majeure?
Where a contracting party wishes to rely on force majeure, such party must prove that the force majeure event led to such party's entire/partial performance of its contractual obligation becoming impossible.
Additionally, to establishing a causal relationship, it is also important to consider, though on a case-specific basis, the timing/occurrence of the force majeure event and whether the affected party could have undertaken any measure to surmount/ mitigate the said event. These factors would have to be considered by the court so as to determine whether an event is truly unforeseeable, unavoidable and insurmountable by the party in default.
Furthermore, to mitigate the counterparty's loss, the party in default must, and is under an obligation to notify the counterparty promptly and effectively of its failure to discharge its (agreed upon) contractual obligations, due to force majeure circumstances and to provide proof of such force majeure event (in case required or requested by the counterparty) within a rational time.
- What is the effect of a force majeure certificate issued by a government body?
In the People's Republic of China, the China Council for the Promotion of International
Trade ("CCPIT") is currently offering force majeure shield certificates to People's Republic of China based companies that are presently seeking to defend an inevitable suspension of performance under their existing contractual obligations, being a resultant of the pandemic outbreak. While the issuance of such certificates may be a cause of alarm to the counterparties that would be/are contracting with the China-based companies, they are...
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