Haig Oghigian, FCIArb - email@example.com
As global trade and investment slowly emerge from the grip of COVID-19, there will undoubtedly be a plethora of disputes, many of which will involve the invocation of Force Majeure. This article will examine, compare and contrast the doctrine under both the civil law and common law systems.
SOURCES AND SCOPE OF THIS ARTICLE
McGill University Faculty of Law conducts studies in both systems, which has provided a unique advantage in preparing this article. In addition, as an arbitrator, mediator and counsel with expertise on disputes in Japan, a brief snapshot of Force Majeure under Japanese law is presented below. Please note the drafting of a Force Majeure clause is not covered in this article since, as pointed out below, the best way to approach drafting is with a mind to the circumstances of the contract and the commercial background rather than the general doctrine. Besides, the reality is that in the COVID-19 aftermath, you will either have a clause or you will not. No one is going to enter into one ex post facto.
The doctrine is typically described as a situation or condition beyond the responsibility, or even contemplation of either (or any) parties to a contract. As such it, in principle, provides the affected party with a legal reason not to perform its obligations under the contract. While, in general, the invocation of the doctrine or the contractual clause provides only temporary relief, in certain circumstances, it could lead to termination of the contract.
The Supreme Court of Canada expressed the doctrine as follows: “… an event beyond the control of either party makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill.” (Atlantic Paper Ltd. v. Saint Anne Nackwic Pulp and Paper Co., 1975, Carswell NB 26.)
It is important to stress that while some countries’ laws recognize the doctrine (e.g., civil law jurisdictions) whether they are contained in a contractual clause in an agreement or not, others (e.g., common law jurisdictions) do not. This is explained in greater detail below.
FORCE MAJEURE IN CIVIL LAW JURISDICTIONS
The Force Majeure doctrine has its origins in civil law. While the concept appears in most civil law jurisdictions regardless of whether a contractual clause is in place, a specific clause agreed to by the parties can alter and tailor the general doctrine. In the Canadian province of Quebec (civil law) Force Majeure is set out in the Civil Code (Art 1470):
“A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it. Superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.”
Other civil law interpretations of the meaning of Force Majeure are more detailed and specific, although they have in common three elements which generally must all appear: an EXTERNAL event which is UNFORSEEABLE and IRRESISTABLE.
Some jurisdictions take a more nuanced approach (not dissimilar to “frustration” under UK law or “commercial impracticability” under US law) and require evidence of “contractual impossibility”; “objective impossibility”; “supervening impossibility”; or “impossibility of performance.”
What should be highlighted is that a court’s or arbitration tribunal’s attention will likely be focused on the facts of the situation and the contents of the contractual clause (if there is one) rather than the general doctrine or legal precedent. Nothing beats good drafting and the more specific the better. Relying on the general doctrine even in the most detailed civil law systems is perilous and not good practice.
FORCE MAJEURE IN COMMON LAW JURISDICTIONS
As pointed out above, while the concept of Force Majeure is not part of the common law tradition, there are parallel doctrines such as “frustration” and “impracticability.” Under the common law theory, the objective notion that the contract or obligation has become impossible is replaced by a more subjective (based on what the parties agreed) analysis of contract’s purpose, even more so than under a civil law analysis. Since the theoretical base for arguing for a temporary suspension of a party's obligations (or the termination of a contract) is eschewed in common law jurisdictions, it is even more important to focus on the facts of the situation.
Generally, “frustration” or “impracticability” will require that performance of the ESSENCE of the contract, due to certain circumstances, has become so completely different from the parties’ expectations that performance must be temporarily suspended or permanently extinguished.
Nevertheless, if there is a Force Majeure clause in place, it will be reviewed and applied as would any other clause in any common law agreement. However, given the narrower analysis by common law courts and arbitrary tribunals, they will apply ejusdem generis (restrictive interpretation based on factors of the same kind).
The facts rather than the theory per se will be critical. Even more so in common law jurisdictions, if the event was or could have been in the parties’ contemplation even though unforeseen, the pleading will likely fail.
There will also be a greater emphasis on whether the non-performing party has mitigated or can mitigate. The Alberta Court of Appeal held that an impacted party is required to mitigate not only the event itself but also resulting damages. (Atcor Ltd. v. Continental Energy Marketing Ltd., 1966 Carswell Alta 642 (Alta.C.A.))
FORCE MAJEURE UNDER JAPANESE LAW
Japan is (largely) a civil law jurisdiction. As such, the force majeure doctrine exists; however, it takes a form more akin to the common law concept of “impossibility” or “significant change of circumstances” rather than those found in the Civil Code.
A defaulting party will not be excused because of non-performance due to impossibility or significant change of circumstance, but its liability may be set aside by a reason not foreseeable nor attributable to it. The exception is an obligation to pay monetary compensation.
Japanese law also recognizes the concept of significant change of circumstances. It is not widely accepted but, in theory, permits a party to amend or rescind a contractor if there is significant unforeseen change which goes to the essence of the contract.
Again, where there is a Force Majeure clause in the contract, it will be enforceable. This could lead to rescission of the agreement; adjustment of the parties’ obligations; or excusing a breach of contract. As with many civil law jurisdictions (but perhaps even more so), Japanese law and practice will allow for greater parole evidence. Therefore, correspondence and communications would be permitted to be admissible in analyzing the circumstances and the clause itself.
Whether or not the COVID-19 crisis will constitute a Force Majeure depends on the specific contract, jurisdiction and, most importantly, on the wording of the clause (if there is one). There are two key points in analyzing whether this pandemic will constitute a Force Majeure. First, recall that the event must not only be unforeseeable but beyond the contemplation of the parties. There have been other pandemics (including the Great Plague!) The question is how this pandemic specifically affects the parties’ contract. Further, if there is a Force Majeure clause, how close does its language address this situation. Second, obviously the more specific the language of the clause, the better. Some courts and arbitral tribunals’ language will construe clauses which contain a list of events narrowly and exclude events which are similar but not those expressly specified in the Force Majeure clause.
WOODS: ARBITRATION PROFESSIONALS
Woods is uniquely placed among litigation law firms in Canada by virtue of the depth and breadth of its practice devoted to domestic and international arbitration. Comprised of experienced litigators well-versed in the legal and procedural aspects of the field, as well as in both Civil and Common Law, Woods acts regularly as counsel before arbitration tribunals as well as before the courts in matters relating to the enforcement or annulment of arbitral awards. Our lawyers also advise and represent parties in the drafting of arbitration agreements and with respect to conflict prevention and settlement strategies, including in mediation or conciliation procedures. Aside from Haig Oghigian, who specializes in mediation and arbitration of international disputes, our team also includes four lawyers renowned nationally and internationally as arbitrators: Stephen L. Drymer (head of Woods’ arbitration practice), James A. Woods (founder of our firm), the Honourable Clément Gascon (former Justice of the Supreme Court of Canada), and the Honourable Joseph R. Nuss (former Justice of the Quebec Court of Appeal). These experienced professionals are frequently appointed to arbitrate disputes, in addition to advising our clients and providing sage counsel to all of our litigators.