It has been flooding heavily in the past few weeks and the effects have been devastating. Other than loss of lives, loss of property and displacements, the floods have also affected Kenyan businesses.
The floods may also affect the performance of contractual obligations. Take the example where goods delivery is delayed or cancelled due to extreme weather conditions. Extreme weather conditions may affect the performance of even more complex commercial transactions. An example could be in international trade, where deliveries could be affected by flight cancellations.
In such scenarios, which party is to blame for lack of performance? The legal concept of force majeure will apply in such scenarios.
In drafting a contract, a force majeure clause is inserted to free both parties from obligation when an extraordinary event or circumstance beyond their control commonly referred to as an 'act of God' prevents one or both parties from fulfilling their obligations under the contract.
For a force majeure clause to stand, it must be invoked. There are several impacts of force majeure caused by flooding. One is to temporarily suspend the parties’ obligations until the weather is better. No party shall be blamed for late delivery in such a case.
The second incidence is when there is limitation of liability. This means the unperforming party shall not be penalised as the non-performance was beyond their control. If the impact is long term, then the parties can re-negotiate the contract or restructure the contract for a win-win solution. The law can allow a party to terminate the contract altogether.
For force majeure to be applied, it must first be included in the contract and specifically mention floods and extreme weather as events of force majeure. If it is not included in the contract it can seldom be relied upon. Secondly, for it to apply the non-performing party must show that there is a direct connection between non-performance and the floods. This prevents a situation where people use the floods as an excuse for contractual breach.
A force majeure clause must be invoked for it to apply. The clause as drafted in the contract will give detailed mechanisms and procedures through which a force majeure clause will be invoked. Some require the non-performing party top notify the other in writing of the incidence of force majeure within a stipulated time frame.
Given that climatic change and adverse weather is now a common phenomenon in today’s world, I advice for the drafting of force majeure clauses that include climatic change and adverse weather. The last few years have created new incidences of force majeure that include pandemics, cyber-attacks, terrorism, adverse change in laws and climatic changes. It is important to consider practical realities when drafting the force majeure clauses.
Incorporating climate change into force majeure clauses demonstrates an understanding of how environmental conditions can impact contractual obligations. Given the increasingly significant role that climate change plays in global and local economies, adequately addressing this in force majeure provisions is becoming crucial for risk management.
Due to the many events of force majeure, businesses ought to have good contract management. The force majeure clause may be well drafted, but it will have no force if it is not invoked according to the provisions in the contract. There is case law where a non-performing party lost their right to invoke force majeure as they did not follow the procedures set out in the contract on force majeure.
