Australia - Chapter 1 - Force Majeure and Hardship in the Asia-Pacific Region

Brenda Horrigan is an independent Arbitrator based in Singapore, and was previously Head of International Arbitration-Australia at Herbert Smith Freehills;

Chad Catterwell is a Partner at Herbert Smith Freehills specialising in cross-border and international arbitration across the APAC Region;

Guillermo Garcia-Perrote is a Senior Associate at Herbert Smith Freehills specialising in international arbitration, infrastructure and energy disputes; and

Chloe Smith is a Knowledge Lawyer at Herbert Smith Freehills in the Australian Disputes team.

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Originally from Force Majeure and Hardship in the Asia-Pacific Region

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Questions

I. Force majeure

A. Background and definition of force majeure in Australia

1. Does Australia recognize force majeure or any other legal concept similar to force majeure such as frustration, etc. (in the following: “force majeure”)? Are there any statutory provisions or is there any case law setting forth the definition of force majeure?

The concept of ‘force majeure’ is not defined in Australian common law or statute. It is, however, not unusual for Australian contracts to include clauses referred to as ‘force majeure clause’ as a means of mitigating risk arising from future events beyond the parties’ control.

As force majeure exists only as a contractual mechanism in Australian law, the effect of a force majeure clause will depend upon the language used in the relevant agreement. Generally speaking, a force majeure clause will excuse a party, or parties to the agreement from performance of their contractual obligations where an event or circumstances outside of their control impacts their ability to do so. The type of event that will trigger the clause, the extent of impact that it must have on performance to attract relief under the clause, and the type of relief offered by the clause will all depend upon the language used in the agreement.

The interpretation of force majeure clauses is governed by ordinary principles of contract law. Accordingly, courts required to interpret a force majeure clause will do so by endeavouring to “ascertain the intention of the parties from the words of the contract, considered in the context of the purpose and object of the transaction”. Force majeure clauses are interpreted strictly in accordance with the general principle that contractual rights can only be altered unilaterally in the precise manner set out by the contract.

Australian law recognises frustration as a common law doctrine. The doctrine of frustration operates to discharge a contract where events outside the control of the parties render the contract incapable of performance. This area of law is discussed below in section II.G.