Force majeure and frustration in commercial contracts and coronavirus (covid-19)

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In these increasingly uncertain times, both in Australia and globally with Coronavirus (COVID-19) the terms Force Majeure and Frustration is increasingly being discussed in the context of commercial contracts.

What is Force Majeure?

This is commonly known as the ‘Act of God’ clause. In very simple terms it is an event beyond the control of either party to a contract that prevents or hinders the performance of that contract.

When the clause is enacted in a contract the Force Majeure clause will suspend the contractual obligations during that period and those contractual obligations will not recommence until the event has ended.

Generally, the contract will provide a definition of Force Majeure and will include such events as:

  • Government action
  • Health events such as epidemics or pandemics
  • Industrial action
  • War
  • Weather events

It is very important to understand what Force Majeure events are covered in a contract and when they can be enacted.

A party relying on any Force Majeure event must also take reasonable steps to mitigate the affect on the party to the contract.

Not all Force Majeure clauses are the same and they can have vastly different outcomes.

What is Frustration?

Frustration is a common law doctrine which provides that where there hardship in performing the obligations under the contract and they are “radically different” from those contemplated by the parties to the contract and performance becomes impossible there should be an automatic mutual discharge of the contract, with neither party being at fault.

There are some remedies that a party can claim if a contract is frustrated and each matter will be considered on the basis of the individual contract.

What should I do?

The business community and individuals in the face of the current uncertainty surrounding the Coronavirus have become increasingly concerned with the legal issues arising out of the ability to perform contracts, honour lease arrangements and associated legal obligations.

It is important to get advice at an early stage.

At FC Lawyers we have been helping our clients to understand what their current obligations together with their future obligations.

Contact us for an obligation free initial discussion regarding your commercial contract and legal rights.