LEGAL REMEDIES PURSUANT TO COVID- 19 OUTBREAK MOVEMENT CONTROL ORDER
- Transactions cancelled or delayed due to lock down
- Invoking Force Majeure
- Unforeseeable event occurred and prevented any party from performing their obligations under the contract
- Pandemic arguably be a force majeure event
- Alternative doctrine of frustration
Amidst the outbreak of Covid-19, many countries are imposing a lockdown or similar measures to restrict the movements of its citizen to contain the widespread of the Covid-19.
This as a result, heavily impairs the operation of businesses and commercial transactions. Transactions are cancelled or delayed causing a huge economical loss to many. Many turn to recover their losses legally. What is your legal remedy in this situation?
In this situation, force majeure comes into mind of many. FORCE MAJEURE is a common clause in contracts to safeguard parties’ interest in the event that something unforeseeable occurred and prevented any party from performing their obligations under the contract.
Force Majeure event is loosely referred to as Acts of God such as natural disasters, pandemic as well as events such as wars, riots and change in government policies.
Earlier this year, the China Council for the Promotion of International Trade (CCPIT) has issued force majeure certificate of novel coronavirus which helps enterprises to minimise liability for contracts that can’t be fulfilled due to the epidemic and safeguard their legitimate rights and interests. The Deputy Director-General of CCPIT Commercial Certification Center said these force majeure certificates have been recognised by governments, customs, chambers of commerce and enterprises in more than 200 countries and regions around the world, and it is widely accepted overseas.
The World Health Organisation (WHO) has also declared that Covid-19 outbreak is a pandemic on March 11th. Therefore, a pandemic such as the Coronovirus will arguably be a force majeure event.
However, in order to rely on the clause of force majeure, it must be expressly stated and defined in the contract. A simple phrase “usual force majeure clauses shall apply” under English law is likely to be void due to its uncertainty.
If your contract contains the force majeure term, you cannot claim for damages but you can have the contract terminated. It is however not an automatic right. There are several elements that has to be proven before one wishes to rely on the force majeure term:
- The burden of proof lies with the party which wishes to invoke the force majeure term.
- He must prove the occurrence of one of the events referred to in the clause.
- He has been prevented, hindered or delayed to perform his obligation under the contract as a result of the event.
- He must further prove that his non-performance was due to circumstances beyond his control.
- The force majeure event was unforeseeable and was within their control.
- He must have taken reasonable steps to mitigate his losses or to avoid the losses.
What happens if your contract does not have the express term of force majeure? You can rely on the DOCTRINE OF FRUSTRATION that originated from an old English case and a similar provision can be found under section 57 of the Contract Act 1950.
A party can raise the doctrine of frustration to terminate a contract when it becomes impossible for the said party to perform his obligations under the contract.
However, the threshold for doctrine of frustration is a lot higher and more difficult to prove. You must prove that:
- The event that lead to the frustration was not stipulated in the contract.
- The party relying on the doctrine of frustration is not the responsible for the event.
- The event which is said to discharge the promise must be such that renders it radically different from that which was undertaken by the contract.
- It is impossible or unjust to enforce the original contract.