Are your terms crisis ready?

So you thought you had a handle on disaster, right? I mean, you’ve been through the storm of COVID-19 and probably still feel like the storm isn’t yet over. 

Except now we’ve moved beyond metaphorical terms. 

We now have actual storms. “One in one thousand years” kind of storms. 

Yes, 2022 has been a real hoot so far, right?

In the last two years, force majeure and frustration clauses have been in the spotlight because of COVID-19. However, in recent days, we’ve also needed to turn our minds back to what used to be the more common reason for these clauses – natural disasters.

What is the legal position if you are unable to perform a contract due to the weather?

Knowing your legal position means that you can keep communicating with the other party, work together to deal with an unexpected event, and ensure the business relationship is maintained.

Let the law assist

Events such as this mean that businesses need to look to the law to assist. Businesses often need to rely on force majeure provisions in their contracts to either temporarily suspend their performance obligations under contracts and protect themselves against failures to deliver goods or perform services, or even to wholly extinguish their contractual arrangements. By the same measure, the separate common law doctrine of frustration may now take on increased importance.

Force majeure

A force majeure clause allows one or both parties of a contract to cease or suspend performance of a contract following the occurrence of a pre-defined event. If the pre-defined event occurs, the party will not be liable for failing to perform its obligations under the contract. It may also give rise to termination where the force majeure event continues for an extended period.

In most cases, a force majeure event includes acts of God, war, riot or invasion, national emergency, government action including strikes, terrorism or the imposition of embargo, or extreme weather events – which could include bushfires or severe flooding. 

In the instance of a wedding being unable to proceed due to impact of natural disaster such as flooding, a good force majeure clause will assist the parties by providing a “map” for the way forward. This could include the allowance of a postponement, termination of the agreement or temporary hold on the provision of services.

Frustration

Where there is no force majeure clause, or where the crisis event does not fall within the definition of a force majeure under a particular contract, the common law doctrine of “frustration” may apply. For the doctrine of frustration to apply, the performance of the contract must be impossible or the obligations under the contract be fundamentally changed by an unforeseen event in a way that was not originally contemplated by the parties.

An example of how impossibility may arise could be the provision of a venue to a couple for their wedding, but the venue being severely impacted by flooding in the week prior to their wedding. Depending on the circumstances, it could be argued that the doctrine of frustration applies, releasing the parties of their obligations under the contract.

Frustration is not easy to establish and so it is always best to get legal advice in instances where you believe it may apply.

Conclusion

In most circumstances, what happens in the event of a natural disaster will depend on the wording of the contract itself, and whether the crisis in question satisfies a force majeure or suspension event, or whether a party has a right to terminate the contract for convenience.

Having a good force majeure circumstance will save you from the heartache and confusion of contract-impacting events. If you do not have a solid force majeure clause in your terms and conditions, it may be time for you to contact us to assist with that.

You can book a call with us or email us an enquiry via our website homepage here: https://www.eventlaw.online