Highlights

  1. The meaning of Force Majeure
  2. Whether pandemic of COVID-19 amounting to Force Majeure event?
  3. The effects of the Force Majeure clause in the Retail Tenancy Agreements
  4. Does Force Majeure clause will be applicable if the performance of contractual obligations under the Retail Tenancy Agreement is affected due to the pandemic?
Force Majeure – What Is The Effect Of Force Majeure Clause In The Retail Tenancy Agreements?

 

Q1. What is Force Majeure clause?

Answer:

Force Majeure clauses are the common contractual clauses found in the agreements such as Retail Tenancy Agreement. Force Majeure clauses are clauses that relieve the parties from performing their respective contractual obligations and/or liabilities under a contract when an extraordinary event or certain circumstance beyond their control arise. In simple terms, any events that occurred beyond the reasonable parties’ control will free the parties from fulfilling their contractual obligations under the contract.

The Force Majeure clauses generally intended to include risks beyond the reasonable contract of a party. In essence, it frees both parties from liability or obligation when an event such as war, riot or act of God such as an earthquake takes place.

Q2. What are the components of the Force Majeure clause?

Answer:

An effective force majeure clause usually contains two main components: –

a. A description of what amounts to a force majeure event; and

b. The consequences of a force majeure event.

The consequences of a Force Majeure event is depending on the drafting of the Force Majeure clauses which may have a variety of consequences.

Q3. When is a Force Majeure may be invoked?

Answer:

Force Majeure is successfully invoked if such event falls within the description of what constitutes a “Force Majeure event” and the consequences of the occurrence of the same as stipulated in the Retail Tenancy Agreements.

Q4. Is the enforcement of Movement Control Order (“MCO”) due to COVID-19 pandemic one of the Force Majeure events?

Answer:

In determining whether the enforcement of MCO due to COVID-19 qualifies as a Force Majeure event is depending on the construction of the Force Majeure clause in the Retail Tenancy Agreement itself and also depending on the facts of the case. Some Force Majeure clauses are drafted with certain broad definitions that covers all events or circumstances beyond the control of the party and some provides with a list of categories of events amounting to force majeure events.

The law is clear that in order to invoke Force Majeure clause, the agreement must be construed by the words used in the agreement.

It is also settled that a party relying upon the Force Majeure clause must prove the facts of its case are within the Force Majeure clause. He must prove the occurrence of one of the events referred to in the clause and that he has been prevented, hindered or delayed, as that case may be from performing the contract by reason of the event. He must further prove that his non-performance was due to the circumstances that is beyond his control and that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequence.

It is our humble view that if the Force Majeure clauses were drafted to include a list of categories such as ”outbreak”, “epidemic of general virus outbreak” or “public disease” as Force Majeure events, hence the COVID-19 may be qualified as a Force Majeure event. However, if there is none of the above specific list of events stipulated in the said Retail Tenancy Agreements, it is still arguably to cite COVID-19 under Force Majeure clause that covers “acts of God”, “lockdown”, “acts of Government” or “events making it impossible for parties to fulfill their contractual obligations”.

We are also of the view that COVID-19 can also be qualified as a Force Majeure event within the definition of “acts by Government” due to the enforcement of the MCO by the Government. Therefore, we are of the view that COVID-19 MCO is covered by the Force Majeure clauses if the retail Tenancy Agreement provides such Force Majeure events as explained earlier.

Q5. If COVID-19 pandemic is qualified as a Force Majeure event, can the Tenant suspend the payment of rental?

Answer:

As explained above, if COVID-19 is qualified as a Force Majeure event, the tenant can only suspend the payment of rental if the Force Majeure clause in the Retail Tenancy Agreement provided such Force Majeure effect.

The Court also has decided that “it is trite that a party relying upon a force majeure clause must prove the facts bringing the case within the clause. He must therefore prove the occurrence of one of the events referred to in the clause and that he has been prevented, hindered or delayed, as that case may be from performing the contract by reason of the event. He must further prove that his non-performance was due to circumstances beyond his control and that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequence.”

Q6. Some agreements contain different effect of Force Majeure clause. Does these different effects of Force Majeure clause give different meaning?

Answer:

As explained in Question 2 above, the consequences/effects of the Force Majeure clauses are depending on the drafting of the clause.

For example, if the Force Majeure clause in the Retail Tenancy Agreement allows for suspension of rental payment during the Force Majeure event, then the Tenant can invoke Force Majeure clause to delay the payment of rent during the MCO due to COVID-19.

Another example is where the Force Majeure clause provides that the rental is waived due to the Force Majeure events, hence the tenants do not have to pay for the rent.

The Tenant cannot invoke the effect of suspension of rental if the Force Majeure clause did not provide for such effect.

Some of the Force Majeure clauses also provide options for the Tenant where the Tenant may choose either to pay the rent or terminate the tenancy during the Force Majeure events. In this situation, if the Tenant refuses to terminate, hence he must pay the rent.

Q7. If the Retail Tenancy Agreement does not contain Force Majeure clause, can we still invoke Force Majeure?

Answer:

The defence of Force Majeure is only applicable when it is expressly set out in the contracts/agreements. If the said retail Tenancy Agreement does not provide any Force Majeure clause, hence the Tenant cannot rely on such principle. This is because the law is clear that when a contract is entered in writing, the intention of the parties must be set out expressly within the contractual documents.

As the Retail Tenancy Agreement does not provide such Force Majeure clause, hence the Tenant has no opportunity to invoke the defence of Force Majeure which resulted he still has to pay the rent and carry out the contractual obligations under the said Retail Tenancy Agreement regardless any event happens.

It is settled that when there is no provision of Force Majeure in the contract, the Court will refuse to imply the same into a contract. There can be no general rule as to what constitutes a situation of Force Majeure. It is all depending on what rights, obligations or situations that the parties have provided expressly in their Retail Tenancy Agreements.

THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.
-GENERAL DISPUTE RESOLUTION AND APPELLATE DIVISION-
Prepared by:

Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Border Taxation Planning

Nur Amalin Shahida Sabidi (Associate)
General Dispute Resolution
Commercial Retail Tenancy Disputes
Contractual, Land and Commercial Disputes
Matrimonial Disputes

Nabila Zakariah (Associate)
General Dispute Resolution
Appellate Division
Contractual, Land and Commercial Disputes
Matrimonial Disputes

Gan & Zul is an established legal firm in Malaysia which consists of experienced litigation lawyers. Our firm provides a wide spectrum of legal services covering various aspects of laws includes dispute resolution, debt recovery, land, bankruptcy, insolvency and corporate dispute. We are also a firm construction lawyers based in Kuala Lumpur.
If you have any queries or require additional information, kindly email us at kul.litigation@ganzul.com or call us at 03-2242 3836

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