Bryan Ng is a Partner of a law firm and founder of Legal Warrior. With the years of hands-on experience in Court and Corporate practice, Bryan Ng has developed a deep passion for helping businesses to be successful. He advises a broad spectrum of law relating to Companies, including Company Law, Employment, and Intellectual Property Law.
Azriel Aziz Azman graduated from Oxford Brookes’ University in May 2016 and obtained the Certificate in Legal Practice (CLP) in November 2017. He completed his pupillage at Messrs. Ariff Rozhan & Co and was called to the Malaysian Bar in November 2018. He thereafter commenced practice at Messrs. Ariff Rozhan & Co. and joined Messrs. Dee Netto Fatimah & Ng in February 2020. He is an avid football fan and a massive supporter of Liverpool FC.
During Covid 19 pandemic, many people has been asking whether Force Majeure clause can be invoked or used during COVID 19 ranging from tenancy, sale and purchase transaction to commercial contract.
So, What is force majeure?
Force majeure is a French term which directly translates to as ‘superior force’. However, in the context of commercial contracts, force majeure would generally refer to an unforeseeable circumstance or event which prevents one or both parties from fulfilling their obligations under a contract. Mccardie J in Lebeaupin v. R. Crispin & Co.[1] referred to the following definition:-
“Force Majeure. This term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control, and such force majeure is sufficient to justify the non-execution of a contract. Thus, war, inundations, and epidemics, are cases of force majeure; it has even been decided that a strike of workmen constitutes a case of force majeure.”
How and when can a party rely on force majeure?
- The contract must contain a force majeure clause
In order to rely on force majeure, the contract in question must expressly consist of a force majeure clause. In this regard, if such contract is silent on force majeure, the parties to the contract will not be able to rely on the same. This is because parties are generally bound by the four corners of their contract and the absence of a force majeure clause would be assumed as parties intentionally agreeing to not relieve each other from their contractual obligations in the event of any unforeseen circumstances.
- The event must fall within the scope of the force majeure clause
In addition to the above, a force majeure clause will normally state the types of event which constitutes as a force majeure event. Therefore, force majeure may only be relied upon if such event (i.e. Covid-19 and/or the Restriction of Movement Order (“RMO”)) falls within the wordings of the force majeure clause[2]. Wordings such as “outbreak”, “pandemic”, “disease”, “quarantine” etc. would be sufficient include situations such as Covid-19 and/or RMO.
In the event that the contract does not consist of the abovementioned terms, parties may arguably rely on other general wordings such as “government intervention” and “unforeseen circumstances” or “events beyond the control of parties” which is normally used in most contracts.
In this regard, the test as to whether an event constitutes as “events beyond the control of parties” would be to show that a party had taken reasonable steps to avoid the event in question failing which the force majeure clause will not apply as it cannot be said that the occurrence of the event was beyond of the parties.[3] As such, the current events (i.e. Covid-19 and RMO) would arguably fall within the ambit of such wordings.
However, it is worth mentioning that a “depressed economy” does not fall within the ambit of circumstances beyond the control of parties as decided in the case of Global Destar (M) Sdn Bhd v Kuala Lumpur Glass Manufacturers Co. Sdn Bhd on the basis that “the ups and downs of business or economic climate are part of the risk of doing business.”[4]
- Duty to mitigate
A party relying on a force majeure clause must also show that they had taken reasonable steps to prevent the reliance on force majeure or at the very least mitigate the effect.[5] In short, a party must show that relying on force majeure is the last resort.
- Procedure to invoke a force majeure clause pursuant to the contract
Further, a party intending to invoke a force majeure clause must be wary of the process and procedure in doing so as stipulated in the contract. In most cases, the relying party would need to issue a notice to the other party on its intention to invoke the force majeure clause. Failure to duly comply with the process and procedure set out in the contract may deny a party from successfully invoking such clause.[6]
Effects of a force majeure clause
The effects of successfully invoking a force majeure clause would ultimately depend on what is provided in the contract. In most cases, invoking a force majeure clause would protect parties from liabilities arising from non-performance either totally or for a specific period of time.
Case Study – Li Ching Wing v. Xuan Yi Xiong
A notable case to look at before COVID 19 is the SARS incident that has affected many countries around the world- not many case laws in the Commonwealth countries that can illustrate or portray a good legal authority except for one Hong Kong case of Li Ching Wing v Xuan Yi Xiong [2004] 1 JKLRD 754.
In this case which concerned the SARS epidemic of which the Defendant is a tenant of a flat which the entire flat were subjected to a 10 days isolation for all tenants due to SARS in 2003. The Defendant then attempted to rely on the doctrine of frustration to be released from the 24 months lease which he entered 13 months prior to the isolation order by the Department of Health of Hong Kong.
In consideration of the period of 2 years fixed term lease, the duration of 10 days of isolation order is not sufficient to frustrate the tenancy as it does not extensively change the nature of the contractual rights or obligations from those which the parties anticipated when entering into the agreement.
Conclusion
Given the current circumstances, it is advisable for companies to peruse and review their existing contracts to identify whether a force majeure clause has been expressly incorporated into the contract, if so, whether the wordings used in such clause caters for the current Covid-19 and/or RMO situation followed by the process and procedure to invoke the force majeure clause.
In the event, that a contract does not expressly provide for a force majeure clause, companies may consider other avenues such as relying on the doctrine of frustration pursuant to Section 57(2) of the Contracts Act 1950 which will be discussed in a separate article.
[2] [2017] MLJU 950
[3] [2015] 4 CLJ 219
[4] [2007] 1 LNS 54
[5] [2019] MLJU 512
[6] [1996] MLJU 524
Bryan Ng is a Partner of a law firm and founder of Legal Warrior. With the years of hands-on experience in Court and Corporate practice, Bryan Ng has developed a deep passion for helping businesses to be successful. He advises a broad spectrum of law relating to Companies, including Company Law, Employment, and Intellectual Property Law.
Azriel Aziz Azman graduated from Oxford Brookes’ University in May 2016 and obtained the Certificate in Legal Practice (CLP) in November 2017. He completed his pupillage at Messrs. Ariff Rozhan & Co and was called to the Malaysian Bar in November 2018. He thereafter commenced practice at Messrs. Ariff Rozhan & Co. and joined Messrs. Dee Netto Fatimah & Ng in February 2020. He is an avid football fan and a massive supporter of Liverpool FC.
