24/03/2020

The recent COVID-19 outbreak, and the government’s responses, have caused widespread disruption to business and society.  This includes the ability of contracting parties to fulfil their contractual obligations.  Where force majeure clauses have been included in contracts, now is the time to consider whether relief can or ought to be sought under those clauses.

What steps do you need to take to access relief?

‘Force majeure’ is not a term of art or a recognised concept at common law.  As such, the steps that you are required to take to obtain relief will turn on the words of the force majeure clause.  Importantly, if a force majeure clause explicitly describes certain procedural requirements that must be followed, then these should be followed. 

The most common procedural requirement is that the party affected by the force majeure event must notify the other party of the event, frequently within a specified timeframe. If you fail to give the required notice within the required timeframe, then there is a real risk that you will be prevented from obtaining relief under the clause. 

What does the law say about notice?

In the case of AGL Sales (Qld) Pty Limited v Dawson Sales Pty Ltd, the Queensland Court of Appeal considered the application of a notice provision under a force majeure clause.

Under the relevant contract, a party affected by a force majeure was required to issue a notice “without delay”.  Here, because the relevant force majeure event was a continuing one which continued for over a year, the question was whether the notice requirement had been met.

In this case, the Court held that a failure to give a notice without delay “substantially defeated” the purpose of the notice provisions.  In the context of the force majeure event being a continuing one, Chesterman JA held that “without delay” meant that notice ought to have been given “as soon as it becomes obvious that the FM Event has prevented, or will prevent, performance”.  As the notice requirement had not been met, relief under the force majeure clause was denied.

Critical to the decision was the court’s construction of the force majeure clause, and a consideration of the commercial purpose of the clause.  These are not straight-forward consideration and there is no bright-line test as to when a notice (or other procedural) requirement will be seen as a mandatory pre-condition for relief as opposed to being merely optional. 

What this case highlights is that the failure to comply with any notice or other procedural requirements in force majeure clauses risks relief under the force majeure clause being denied. 

Key Takeaways

  • If there is any risk that COVID-19 will affect your business’ ability to perform, you should review your current agreements and identify what relief you may be entitled to under force majeure clauses and the procedural requirements that you may need to comply with.

  • Where notice requirements exist, then comply with those requirements. Speaking in general terms, where you are not sure whether the force majeure clause has been triggered, it is better to err on the side of giving notice earlier rather than later.  Ensure that the notice you provide is comprehensive and includes all content required by the force majeure provision, with the requisite specificity and detail.

Authors: Alex Ryan, Stephanie Essey and Andrew Hii

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