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Corporate Update
January 2011 |
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Queensland floods - Can your company exercise force majeure |
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The recent and unfortunate Queensland flood events of late 2010 and early 2011 have left a wave of companies unable to perform obligations under their contracts.
Where a company is unable to perform an obligation under a contract due to the Queensland floods, relief from liability for non-performance may be available to that company under the contract's force majeure clause.
Are the Queensland floods a force majeure event under your contract?
In short, it will depend on the definition of “force majeure event” (if any) under the contract. Force majeure is not deemed to apply and is only effective in Australia if it is contractually agreed between the parties.
Generally, a force majeure event is an event which, whether natural or human, is beyond a party’s control. For example, a natural disaster or war.
Most definitions of a force majeure event are likely to be broad enough to cover the Queensland floods.
In that case, can you invoke force majeure under your contract?
Generally, force majeure can only be invoked where the contracted obligations cannot be performed at all. This means that if performance of the obligations under the contract can still be achieved by alternate means, even where these alternate means are more costly and/or onerous, then force majeure cannot generally be invoked under the contract.
For example, where a company is required to haul coal from one destination to another by truck and the intended route is flooded, the company may still be required to haul the coal to the required destination by using an alternate route, despite any additional costs. However, if the same company were required to haul the coal by train and the only available train network was flooded and no alternate train network was available then, force majeure could likely be invoked under the contract.
In almost all cases, the obligation to pay money is not able to be excused by force majeure.
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