Arising from the emergence of COVID-19, it has become obvious that there shall be a massive impact upon virtually all subsets of commercial and consumer contracts. On 11th March, 2020, the World Health Organization (WHO) declared the virus a ‘global pandemic’ and to date, nearly every country has had confirmed cases. Further, most of the countries impacted have implemented some form of social distancing policy, curfew and/or quarantine. A necessary consequence of these measures has been restrictions to travel both domestically and internationally.
The Bahamas has, in some aspects more proactively than other jurisdictions, imposed its own social health protection measures leading to the closure of all businesses and institutions save for those which provide essential services. This has led to significant disruptions in business; and will continue to hinder individuals and businesses from being able to perform their contractual obligations. The categories of contracts most likely to be affected would include, but not be limited to: goods and services (in particular the tourism sector) financial contracts, supply, landlord and tenant, employment, insurance and construction contracts.
In order to lessen the impact which will arise from the measures implemented in response to the pandemic, many businesses will seek to rely upon what are known as force majeure clauses in their contracts; if they are fortunate enough to contain the same. This bulletin shall explore the issue of force majeure contractual clauses and the manner in which they are applied within The Bahamas.
The Concept of Force Majeure – What is it?
Force majeure is a doctrine with its roots in French law and is prevalent in many civil law jurisdictions. In its original civil law context, where force majeure is applicable, it may relieve a party of its performance under a contract where there are certain events which have arisen beyond that party’s control. The events also must not have been reasonably foreseen at the time that the contract was concluded. Further, to be applicable, the effects of the said event could not have been avoided by appropriate acts.
In contrast to the civil law position, there is no fundamental doctrine of force majeure at common law and parties have traditionally had to rely upon the doctrine of frustration in circumstances where performance under a contract has become impossible. However, it is quite rare at common law for a contract to be held to be frustrated. The courts generally, save for instances that require certain public policy considerations, find that parties should draft the terms of their contract with the knowledge that circumstances may change and plan accordingly. The trend has developed, therefore, in common law jurisdictions for parties to include express force majeure clauses in contracts thereby setting out the circumstances which would relieve them of obligations.
As a common law based jurisdiction, the laws of The Bahamas fall in line with the principles related to applicability of force majeure and the need for an express contractual provision. As such, parties who wish to rely upon the doctrine of force majeure can only do so if it is expressly stated in their contract; otherwise, such a party would have to satisfy the high burden of proving that the contract has become frustrated. Where parties include a force majeure clause in their contract, whether it has become effective will be established based upon the particular construction and interpretation of that clause and the nature of the contract.
There have been relatively few reported cases in The Bahamas which have considered the doctrine of force majeure. However, one notable case from within this jurisdiction is Millennium Telecommunications Limited (MILETEL) v Bahamas Telecommunications Company Ltd  1 BHS J. No. 88. In that case, the Supreme Court accepted a definition of force majeure clauses as, essentially, clauses which suspend or extend performance of a contract upon the happening of a specified event beyond the control of the party. In that case the Plaintiff sought to rely upon a force majeure clause upon the basis that the liberalization of the telecommunications sector in The Bahamas had, essentially, rendered its performance impossible. In rejecting the claim, the Court held that the liberalization was not an event within the scope of events specified under the clause.
Force majeure clauses have become quite common in modern contracts although they may take various forms. What is important is that the clauses are drafted rather precisely and in the context of the particular relationship or transaction. Ultimately, the enforceability and applicability of such a clause is language dependent. For example, in Millennium the relevant clause provided:
“Force Majeure means in relation to either party any circumstances beyond the reasonable control of that party (including without limitation acts of God or of the public enemy earthquakes hurricanes acts of government in its sovereign capacity fire floods epidemic strikes and lock-outs)”.
Unfortunately, for the plaintiff, this clause was too general in the context of the situation which eventually arose.
When does Force Majeure arise?
Generally, in order for a party to rely on an event as constituting a force majeure, that party must prove that:
- The occurrence of the event was beyond his control; and
- There were no reasonable steps which he could have taken to avoid or mitigate the consequences of that event.
Both of these factors must be established such that even if an uncontrollable event arises, a party may not be able to demonstrate force majeure where reasonable care was not exercised.
In considering the applicability of a force majeure clause, courts will look at the actual wording of the clause and will analyse several factors such as causation, the parties’ intention, evidence, the event, and the event’s impact.
Therefore, a boiler plate force majeure clause cannot be relied upon as a panacea and courts will examine and analyse clauses on a contract-by-contract basis. The Courts have also been persuaded that a party cannot rely on a force majeure clause in order to escape responsibilities merely where events, including increased market price, make a contract ‘dramatically more expensive’ or more arduous to execute unless this relief was provided for in the contract.
Reliance on a Force Majeure Clause
Usually, giving proper notice of the force majeure event is a requirement expressly set out in the contract. Further, it is accepted that such notice must be made promptly to the other party. In Millennium, it was determined that the notice sent was neither prompt nor sufficiently specific.
As noted above, specificity is important in the context of force majeure clauses and to rely upon the same such clauses should:
- Give precise detail as to the circumstances which constitute a force majeure event;
- Specify notice procedures
- Set out a specific framework for the relief and remedies that the parties may pursue in the event that the clause is triggered. For example, extension, termination, reduced rates, and suspension;
- Consider the domino effect that a force majeure event once pronounced would have on other contracts along with analyzing the risks involved with relying on force majeure such as the reputational, logistical and financial risks; and
- Reliance on a force majeure clause also generally requires a party to take steps to mitigate and that party will need to show that, in the circumstances, reasonable steps were taken to avoid the event or lessen the impact. Therefore, mitigation obligations should be established.
The rights and obligations of parties to a contract which is governed by Bahamian law will be determined by the close reading and interpretation of the provisions within those contracts. Subject to the precise terms of a given contract, the outbreak of the current pandemic may qualify as a force majeure event giving rise to impacts on many aspects of commercial practice and serious risks to health and safety.
In these circumstances, individuals and business alike should examine their various commercial contracts to ascertain whether: (i) it contains a force majeure clause; and (ii) if so, whether it is applicable to the present circumstances. In the absence of legislation being passed, to force relief to be provided to parties to a contract in unfair circumstances; a force majeure clause is a good measure to attempt circumvention of uncontrollable risks. However, as stated, the effectiveness of a force majeure clause in a given contract is dependent upon, inter alia, its language. In the absence of a force majeure clause, or an effective force majeure clause, a party may be left to rely upon the general principle of frustration and the traditionally strenuous burden which arises in that context.
ABOUT THE AUTHORS
Tara Archer-Glasgow – Partner
Audley D. Hanna, Jr. – Partner
Dennise Newton – Attorney-in-Pupillage
The information contained in this article is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases. Copyright ©2020 Higgs & Johnson. All rights reserved.