Coronavirus and Bushfires Rekindle Interest in ‘Force Majeure’

The ongoing destruction and disruption being wrought by the bushfires and the coronavirus has businesses and lawyers dusting off contracts to check whether these phenomena might be ‘force majeure’.

The new decade began much as the last ended, with many parts of Australia ablaze and smothered in smoke. It also began with reports from the Chinese province of Wuhan of a novel coronavirus (technical moniker, Covid-19) that the World Health Organisation would soon declare to be a Public Health Emergency of International Concern (PHEIC). Speaking at the House of Representatives economics committee in Canberra recently, governor of the Reserve Bank of Australia, Philip Lowe, said that the economic risk of the coronavirus is now even greater than it was during the SARS outbreak.

What is ‘force majeure’?

In broad terms, force majeure refers to the risk that performance of a contractual obligation may be delayed or prevented by an event or circumstance beyond a party’s control – typically, a natural disaster. A force majeure clause is usually included in a commercial contract to excuse one or both parties from performance of the contract in some way if defined ‘force majeure’ events occur.

Examples of force majeure in the 21st century

Although force majeure principles tend to derive from cases that centre on events such as  dock workers taking industrial action in the form of strikes or storms interfering with shipping or trade, the same principles apply equally to more modern causes of business interruption and clauses continue to evolve.

For example, after the September 11 attacks, “terrorism” or “terrorist threats” started to appear more frequently as trigger events in force majeure clauses.

In recent years, attention has focused on business interruption arising from cyber incidents. For example, 2017 saw the WannaCry and NotPetya ransomware attacks which significantly affected many well-known organisations, including several logistics and transport companies such as Deutsche Post, DHL and Maersk. Earlier this month, logistics company Toll was also hit by a ransomware attack from which it is still recovering.

Although technology contracts often deal with cybersecurity related issues, it has not been common to date for cyber incidents to be listed as a force majeure event in general commercial contracts. Commercially, it might be difficult for one party to argue that it should be relieved from liability where it suffers a cyber incident which, as between the parties, it is better placed to be able to prevent and manage.

Looking further afield, if climate-related events become more extreme in future years, it is possible that an appropriately drafted force majeure clause will become increasingly important. For example, as a mechanism to manage risk in commercial contracts in industries exposed to these kinds of events. Dr Lowe, speaking recently at the Australia-Canada Economic Leadership Forum, warned that the economic impact of climate change will be ‘profound’.

Bushfires spark attention on force majeure

The continuing effects of the Australian bushfires have also brought force majeure into focus in numerous sectors.

In the short-stay letting industry, there has been a call for operators of short-stay letting platforms such as Airbnb not to debit booking fees where it would be unfair to do so as a result of the bushfires.

VicForests, a government organisation in the logging industry issued force majeure notices to ten timber contractors, impacting their ability to employ staff.

Under Telstra’s Migration Plan, Telstra advised the ACCC that the NSW and QLD bushfires were a force majeure event following concerns about its worker’s health and safety. Telstra’s Migration Plan, that commenced back in March 2012, covers the steps that Telstra is required to take to migrate various services from old copper and Hybrid Fibre Coaxial networks to the NBN. Under the Migration Plan, a Force Majeure Event is defined to include (among other things):

  • lightning,
  • fire,
  • earthquake,
  • storm,
  • flood, or
  • any other weather conditions which would be expected to place at risk the health or safety of the employees of Telstra or NBN Co or any other person.

Coronavirus puts force majeure under the microscope

The coronavirus has also prompted Australian and international businesses to carefully consider their obligations to perform contractual obligations, and whether force majeure may apply.

For example:

  • China National Offshore Oil Corp (CNOOC), a major importer of liquified natural gas (LNG), suspended contracts with overseas suppliers after declaring the coronavirus force majeure.
  • Gaungxi Nanguo Copper, a copper smelter in Southwest China, declared force majeure on deliveries of copper concentrate after concerns about an impact to demand as a result of the outbreak.
  • BHP Group is reported to be negotiating with Chinese customers to delay copper concentrate shipments in response to plant closures in China.

Closer to home, in the $15 billion Chinese-student market, education institutions and accommodation providers exposed to student-dislocation risks have also sharpened their attention on force majeure issues. For example, even a student accommodation business, Scape Australia, has weighed in on the issue. Chairman, Craig Carracher, told media recently that the organisation would not penalise international students for deferred arrival because of the coronavirus.

What issues can arise when trying to rely on a force majeure clause?

Parties may argue about which events are within, or beyond, the reasonable control of a party, that is, whether certain events fall within the scope of a force majeure clause.

Express inclusion or exclusion of certain events may be necessary when drafting and negotiating the clause, particularly if there is any doubt about whether specific events of particular importance in the context of the proposed transaction are included or excluded.

As the burden of proof is on the party seeking to rely on the force majeure clause, matters it must be able to prove include:

  • That it has complied with the notice requirements.
  • The event or circumstance could not have reasonably been avoided.
  • That it has taken steps to mitigate the effect of the event or circumstance.

Parties should also be aware that federal and state legislation imposes a degree of statutory control of force majeure clauses, for example, under the:

  • Australian Consumer Law, and
  • Contracts Review Act 1980 (NSW).

For further guidance on force majeure issues, consider a trial of Practical Law to enjoy its comprehensive suite of materials. These include resources by Practical Law Commercial produced to help companies and their advisers navigate the complexities of commercial law.

Andrew joined Practical Law after more than seven years in practice at leading law firm King & Wood Mallesons and specialist corporate firm Watson Mangioni. Andrew’s practice included advising clients on a range of corporate transactions and commercial matters including mergers and acquisitions, restructures, commercial contracts, capital raising and corporate governance.

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