Usually contracts not only spell out rights
and obligations of parties, it defines the scope of the legal or commercial
relationship as well as anticipates unforeseen situations (like we have
experienced and are still experiencing the effect of the outbreak of Covid19
which has not only altered daily living but how we discharge our duties in the
workplace and other legal/commercial arrangements).
Specific contract provisions like the
principle of force majeure and the doctrine of frustration may be invoked to
mitigate liability arising from a breach. While the former is the creation of
contract the latter is the creation of common law.
It is therefore safe to include force
majeure clauses in contracts. Force majeure refers to a clause
that is included in contracts to remove liability for
natural and unavoidable catastrophes that interrupt the expected course of
events and prevent participants from fulfilling contractual obligations. The
effect of such a clause is that it contemplates extraneous business risks
occasioned by future events which are beyond the control of any party to the
contract, affecting the parties from discharging same and providing a flexible
approach on how parties manage the situation.
Therefore, a party affected by outbreak of
disease (epidemic, pandemic), war, riot or natural disaster (Act of God) can
invoke the force majeure clause to avoid liability for default that will result
in breach of contract i.e the failure of performing obligations of the contract
arising from the unforeseen event.
A well written force majeure clause must
provide for:
– A range of events that triggers the non
performance of the contract
– The impact of the effect when the
clause is invoked
– The impact of such invocation on
parties contractual obligations
On the other hand common law envisages that a
contract may be discharged or set aside on the ground of frustration i.e
when an unforeseen event interferes with the capacity of the parties to fulfill
contractual obligations. It therefore implies that a contract may be frustrated
where due to supervening events, parties are unable to substantially perform
their obligations as anticipated in the contract. (Note that the presence of a
force majeure clause and frustration clause in one and the same contract
renders the frustration clause ineffective i.e displaces the frustration
clause).
A supervening event is an event that occurs:
a. After the formation
of the contract
b. Without its inclusion
in the provisions of the contract and
c. In absence of
anything either party is capable of doing by way of a fault or default or
anticipatory acts
d. When the nature of
the contractual rights and obligations is substantially altered or interfered
with such that:
· Performance
of the contract has become impossible
· The
contract is now totally different from what the parties intended
· A
fundamental contractual term has become incapable of being performed.
However, where a force majeure clause
displaces the effect of the doctrine of frustration in a contract: for events
within the force majeure clause, a party can argue frustration for any event
beyond the scope of the force majeure clause and the court may grant an order
in favour of such argument.
The striking difference between a force
majeure clause and frustration apart from the fact that the former is a
creation of contract is that parties may choose to resume or defer their rights
and obligations after the supervening event is over while in the case of
frustration, parties are discharged from rights and obligation arising from the
contract although any partial performance must either be compensated or partial
payment recovered.
Corporate Commercial and Dispute Specialist