Force Majeure – Do you have this clause in your contract and know your rights?
The realities and effects of the recent curfews, lockdowns and other measures imposed by the East African governments with other related presidential directives continues to have dire economic consequences for businesses, employers, landlords, tenants and citizens alike. Many organisations and individuals may have entered into lengthy and binding written contracts with parties where default of any terms of contracts may prove to be very expensive and have drastic financial consequences for the parties. Many such parties will be contemplating the best possible way to renegotiate or exit from such contracts.
The two contractual and legal mechanisms commonly used in situations where contracts are rendered almost impossible to perform due to extraneous and unforeseeable circumstances, such as COVID19, are force majeure and Doctrine of Frustration. This article will examine the two mechanisms and offer some practical guidance on contractual rights and responsibilities of parties.
What is Force majeure?
Force majeure translates literally from French as “superior force”.When the term is used in written contracts it describes those unforeseen events (such as war, terrorism, strikes or earthquakes) that are not the fault of any party and that render it almost impossible for parties to perform their obligations under the contract.
Contract Law in all East African jurisdictions is either based on English statute law (Kenya (1) and Uganda (2)) or based mainly on principles of the English common law (Tanzania (3) and Rwanda (3)). In English law, force majeure is not a creature of common law and it is also not a law embedded in statute.
For force majeure to apply it has to be expressly stated in a contract and it cannot be implied.
The effect of a force majeure event is that it suspends all contractual responsibilities and obligations under a contract. Some examples where expressly stated force majeure clause can be invoked:
- A tenant who runs restaurant is compelled to shut the restaurant due a government directive and therefore unable to comply with terms of its lease with the landlord.
- A distributor who has a contract of supply is unable to do so as national and international borders are under government lockdown.
- Field employees are unable to perform their duties due to social distancing rules.
To invoke force majeure successfully, the unforeseeable event is beyond the reasonable control of the affected party, the event must have prevented the affected party’s ability to perform the contract and the affected party must have taken all reasonable steps to mitigate the events or its consequences. Note that the affected party must issue a notice to the other party with supporting evidence.
Doctrine of Frustration
Frustration is a doctrine embedded in English contract law and therefore applicable to contacting parties in East Africa. Frustration has the effect of setting aside a contract and it automatically comes to an end. The doctrine can be successfully invoked where an unforeseen event either renders contractual obligations impossible, or radically changes the party’s principal purpose for entering into the contract.
Note that if a contract contains a force majeure provision, the doctrine of frustration is not available as a relief. The threshold for proving that a contract is frustrated is also very high.
Guide if a contracting party wants to rely on force majeure relief.
Even if a contact includes a force majeure clause there are other important factors to consider:
- Is there an express event set out in the force majeure clause – Some clauses are elaborate to include a host of express events which may be interpreted as force majeure but other force majeure clauses are generic and may not contain the express events?
- Is there any other event, and not the force majeure event, which may be the main cause for non-performance of the contract?
- What steps can be taken to reduce the effects of the intervening and unforeseeable event? You must be able to show that all reasonable steps have been taken to mitigate the effects of the intervening events.
- Do you need to give any notice to the other party to be entitled to the relief? Force majeure is not an automatic entitlement without notice to the other party. There may be express provisions in your contract as to the mode of notice to the other party with specific time limitations.
Guide if a contracting party receives force majeure notice.
You may be a landlord, supplier or transporter and you have contracts with your tenant or distributor and they are unable to perform their contractual responsibilities due to a COVID-19. When a notice of force majeure is received from the contracting party the following steps are recommended:
- Check if the contract with includes a force majeure clause and, if so, is there the specific event (pandemic) covered in the clause.
- Has the notice from the party claiming the relief received as per the provisions of notice in the contract.
- Have sufficient reasons been given with supporting evidence to entitle a relief under the force majeure.
A force majeure relief should be claimed with great care as it can be very costly to both parties to a contract.Wherever possible, before notifying the other party of force majeure relief or denying the relief, the best approach would be to commence negotiations and reopening the contract to see if an agreement can be reached to vary the contract.
References
1. Section 2, Law of Contract Act (Chapter 23) Laws of Kenya
2. Section 2, The Contact Act (Chapter 73) Laws of Uganda
3. The Law of Contract Act (Chapter 345) Laws of United Republic of Tanzania
4. Law No 45/2011 OF 25/11/2011 Governing Contracts
Amit Gadhia
Advocate of the High Court of Kenya.
Solicitor of England and Wales (practicing freelance).
Certified International Privacy Professional-Europe (CIPP/E).
Certified Company Secretary (Kenya).
Corporate Governance Professional (ICSA – UK)
