In recent weeks, Tanzania has reported several cases of Coronavirus (Covid-19) and in response the Government has closed learning institutions and banned some public gatherings, among other measures. In the business world, the Coronavirus pandemic has prompted a hot discussion as to whether a party to a commercial contract can be released from the performance of contractual obligation as a result of a ‘force majeure’.
What is force majeure?
A force majeure (French term that means a superior force) is unforeseeable and uncontrollable circumstances or events preventing a person from fulfilling his or her contractual obligation. It is an ‘act of God’, which parties to a contract cannot prevent from happening or occasioning losses. The event or condition in question must have been (1) irresistible; (2) unforeseeable; (3) external to the parties and (4) must have made performance an impossibility and not merely more difficult or impracticable.
What are the different types of force majeure?
Force majeure events may take the form of natural catastrophes such as hurricanes, floods, earthquakes, and volcanic eruptions or political force events such as wars, riots, and terror attacks. Epidemic or pandemic diseases such as Ebola, Coronavirus and an act of a state or governmental prohibition. In some instances, the Courts and contracts have recognised a prolonged shortage of energy supplies, strikes, explosion, lockouts, fire, slowdowns as force majeure events.
Can you show me samples of force majeure or hardship clauses?
The force majeure clauses are common in Goods and Services Contracts (GSCs), Import and Export Agreements (IEAs), Mining Development Agreements (MDAs), Production Sharing Agreements (PSAs), leases, Bilateral Investment Agreements (BITs) amongst others. Two examples of force majeure clauses are below:
“Neither party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of the failure of performance of the contract by Defaulting Party if failure is occasioned by natural calamities including but not limited to droughts, floods, hurricane, and earthquake.”
“In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.”
When can one declare a force majeure?
A person can declare force majeure by notice within a reasonable time on the expected consequences of the event. A contract is expected to provide deadlines for making such notices to make the claim effective.
What is the effect of a force majeure event on a contract?
When there is a temporary impossibility in the performance of a contract, the contract will be suspended for the duration of that event. When there is a permanent impossibility to performance, the contract will generally be terminated retrospectively.
What are the pros and cons of declaring a force majeure?
Concerning the advantages of invoking a force majeure clause, it protects the party who fails to perform the contract in due time because of unforeseeable and uncontrollable events. Simply put, it is an important tool of minimising liability in circumstances beyond either party’s control. Regarding the disadvantages of declaring a force majeure, it may lead to unjust enrichment out of the contractual transaction especially where one party had already performed his or her part of the contract. It may as well be invoked as a waiver of liability in case of failure to perform a contract. It may sometimes lead to the termination of a contract when there are prolonged effects of the event.
Does Tanzanian law recognise force majeure?
The law of contract recognises force majeure. For instance, section 56(2) of the Law of Contract Act provides that ‘a contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.’ The parties can also rely on the common law principles applicable in Tanzania to enforce a force majeure clause. However, the contracting parties are urged to include such a clause in the contract itself. A failure to do so may attract equal liability amongst parties. The force majeure clause may as well be implied or read into the contract by the operation of law or the parties can resort to the doctrine of frustration.
How do you invoke force majeure?
Any party claiming relief from the performance of obligations arising under the contract on account of any event or circumstance of force majeure, such party is normally required to give written notice to the other party of such event or circumstance as soon as reasonably practicable after becoming aware of such event or circumstance. The claiming party is under a duty to reasonably mitigate the event and its consequences and prove that there are no alternative means of performing the contract.
When does force majeure not apply?
Force majeure clause may not be applicable in cases where the parties ought to have foreseen the event referred to as a force majeure or where there the party could control the event. Or in circumstances where a force majeure clause may be premature, such as the possibility of a circumstance to change shortly, hence would not affect performance. It is important to consider the relevance of the claimed force majeure or its effects on the contractual obligations.
What else do I need to know about force majeure clauses?
Force majeure is not automatically invoked. The parties who wish to benefit from such clauses are highly advised to include it in the contract. Further, it may work to excuse one or both parties of all or part of the obligations. However, the wording of the force majeure clause may not always cover everything and hence must be carefully drafted. Not everything may qualify under force majeure and the clause itself provides the first line of guidance.
Article compiled by Tanzanian member firm FB Attorneys