How Can I Get Out of My Contract? What is Force Majeure?

PART 1

A lot of people are asking me – how do I get out of my contract?  The declaration of a pandemic by the World Health Organisation and the directives of governments are having effects on business that a few weeks ago we could have never imagined.  I personally have been in tears thinking about fellow business owners over the weekend and the difficult decisions that they are making in the face of this crisis.

Here is a simple framework for thinking about getting out of contracts.

First Step: Read the Contract

This might seem obvious but it’s important to check all clauses. Does it contain an express 'force majeure' (French for "superior force") clause?

Force majeure covers events or circumstances not within the control of the affected party (such as acts of God, war) and which the affected party cannot reasonably prevent or overcome.

The Clause is in the Contract

A force majeure event usually suspends performance of the affected party's contractual obligations for the duration of the force majeure, but it does not extend the period of the contract nor entitle either party to terminate the contract.

Variations on force majeure rules are possible, so the clause should be carefully read and interpreted.

Impossibility To Comply With Contractual Terms

If a government directive having the force of law makes it impossible for you to comply with your contract temporarily, then the force majeure clause in the contract likely applies.

But if a government directive having the force of law makes it impossible for you to comply with your contract permanently then the contract is likely ‘frustrated’ (terminated) – regardless of if there is a force majeure clause in the contract.

There is my update on frustration of contract.

Conclusion

So, how can you get out of your contract? Let’s review:

1.     Is there a force majeure clause in the contract?

2.     Does a binding government directive bar contractual performance:

a. temporarily (activating the force majeure rule, if any, and suspending performance); or

b. permanently (frustrating and terminating the contract)?

If you are unsure about whether a specific force majeure clause has been enlivened or your contract has become frustrated, contact You Legal on 1300 870 661 for a review of the terms of the contract and advice on how to proceed.

If you get it wrong, the counterparty may have the right to sue you for damages for wrongful breach/termination of the contract.

In the meantime, stay well.

Sarah