Written by Andrew Lourdes
Criminal Defense Lawyer and Life Coach
A contract is an agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit. The performance of the contract is subject to the terms of the contract either written or verbal.
The Movement Control Order (MCO) has triggered a serious financial impact on many businesses due to fall in revenue and individuals suffering from loss of income and even loss of jobs.The coronavirus crisis has given new relevance to the legal term “force majeure.” Companies began invoking force majeure to supply or reject supplies they say they don’t need or to get out of leases they say they can’t afford.
French for “superior force,” the phrase typically describes an unexpected, external event that makes it impossible for a party to fulfill its obligations under a contract. Now because force majeure relieves a party of its duties under a contract, the issue of specifying exactly what may be considered an event under force majeure is critical in negotiating the contract. What needs to be understood is that the force majeure clause is NOT implied by law or an automatic right. It must be expressly included in the agreement by the parties, and the wording of the clause has to be examined to determine if it is wide enough to include the MCO or the Covid-19 outbreak.
- A party seeking to invoke a force majeure clause bears the burden of showing that an event has occurred which is beyond his reasonable control and could not have reasonably be foreseen. The point to convince the court is ‘beyond his reasonable control and could not have reasonably foreseen’. So if a supplier signs a contract to supply goods in February 2020- can he than argue that the outbreak was beyond his control or knowledge. The courts may not agree because the outbreak was known to the world since December 2019 although it spread to many parts of the world only much later. Another example is in an oil supply agreement. The oil company may seek to include “supply risk” as a force majeure event. The oil company should, however, have already done extensive analysis of its oil reserves and production forecast before engaging in contract negotiations to deliver any oil.
- There is no blanket rule as to whether the COVID-19 outbreak can be considered a force majeure event. When creating such a clause in a contract it is important to not only define the events covered, but what will happen if one of the events occurs, which party can suspend performance or terminate the agreement, and what happens in the event the force majeure event continues for a lengthy period of time. This means that the drafting of the clause must be thorough. If the clause is general in scope than reliance on the clause may be disputed. Words such as “acts of God” are arguably insufficient, as an act of God is “an accident due to natural causes, directly and exclusively without human intervention”
To my understanding there is yet a reported case in Malaysia as to whether the COVID-19 outbreak falls within the scope of a force majeure clause. What is more crucial now is to ensure business continuity and in turn, retain employment and protect jobs. We must all play our part through clear and honest communication with parties who we have a contract with and thus avoiding the necessity of court hearings to settle disputes. If you are unable to communicate effectively than engage a lawyer to do a pre-litigation mediation.