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Force majeure during times of crisis

11 May 8:00 by Sharon Kaur
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On March 16, Prime Minister Muhyiddin Yassin appeared on national television to announce the government’s latest effort in containing the coronavirus - a nationwide ‘Movement Control Order (MCO)’ to be implemented two days after. While some rejoiced over the ‘additional holidays’, it was not long before the impacts of coronavirus became apparent.


As local and global economies alike experience a general downturn, companies resort to cost-cutting methods to prevent themselves from going out of business, with some encouraging employees to go on unpaid leave while others consider temporary salary deductions to offset the impact brought by the slowing economies.


While employees are safeguarded by the Labour Laws of Malaysia, where salary deductions can only be made in compliance with Section 24 of The Employment Act 1955, employers are struggling to find ways to navigate through their contractual obligations, especially with supply chains being heavily affected.


The recent spike in interest for “force majeure” could well be an indicator that many are looking to seek refuge in this extraordinary clause. Force majeure, which translates to “superior strength”, is a clause that allows contracts to be postponed or even cancelled when unforeseeable events ranging from ‘Acts of God’ such as hurricanes and avalanches to manmade emergencies like wars or labour strikes make it impossible to deliver on the previously agreed terms. As many are finding themselves in similar situations, force majeure might offer a way out, however, it’s also known to be notoriously hard to establish.


Looking back at West Africa’s Ebola outbreak in 2014, Morocco tried to establish the esoteric force majeure in hopes to postpone hosting the Africa Cup of Nations during the epidemic. Yet, it was denied on the basis that Ebola did not make it impossible to hold the football tournament, only more difficult. In the end, Morocco was fined one million dollars and was banned from competing in the next two tournaments.  


Therefore, having a force majeure clause in the contract is merely the prerequisite, to successfully invoke it would require a clear demonstration on the causal relationship between the event and its ability to deliver, in a way which things are made impossible instead of just being difficult or more expensive than it would have been.


With the intricacy of the force majeure clause, it’s hard to draw a blanket conclusion as to whether coronavirus or its associated events would qualify as force majeure. Each individual case will have to be analysed separately, from the exact contract terms to the ramification coronavirus has on its operations. 


If you’re curious to find out more about how the market is performing or if you need any support with your hiring, don’t hesitate to contact me at skulwantsingh@argyllscott.my.