Lawyers say ‘force majeure’ clauses may exempt businesses from honoring contracts

BUSINESS contracts signed prior to the coronavirus outbreak may not be fulfilled, according to two local lawyers, because of their inclusion of a ‘force majeure’ clause, designed to remove liability in the event of natural or unavoidable catastrophes. In view of the consequences of the outbreak, including measures and restrictions introduced by the local government, Covid-19 could be considered a case of ‘force majeure.’ On occasions when an unpredictable impediment beyond the control of the parties renders the performance of a given contract absolutely impossible, the parties may, according to Macau law, be exempted from honoring their business contracts. In an article issued by Rato, Ling, Lei & Cortés Advogados, lawyers Pedro Cortés and José Filipe Salreta argue that recourse to a ‘force majeure’ clause can take place under only a specific contract. The contract depends on whether the parties have inserted a specific clause to that effect – or under the general stipulations of the law, such as Decree-Law 74/99/M (legal regime of public works contracts).
“The recourse to ‘force majeure’ is difficult to consider since it does not exist as an autonomous legal concept under Macau law – except in the referred regime of public works contracts – without prejudice of the definitions that might exist in a specific contract,” said Cortés and Salreta. “The mention of ‘force majeure’ in Macau law is manifold. However, and without prejudice to the specific case of the abovementioned Decree-Law 74/99/M, it does not exist as a general clause for termination under Macau law,” wrote the lawyers. They added that con
tracts could be terminated based only on the law or by mutual agreement. Meanwhile, Macau has another legal framework to cover cases when a contract cannot be fulfilled but its non-fulfillment cannot be attributed to the debtor. This allows the injured party to terminate the contract or modify it according to the actual situation. However, this is only possible if the circumstances on which the parties based the decision to conclude a contract have undergone an abnormal change. As a general rule, when performance becomes impossible for reasons not attributable to the debtor, the obligation will be extinguished. The lawyers then suggested that another solution would be the termination or modification of a contract due to changing circumstances. “However, the termination or modification of a contract due to changing circumstances is rarely applied by the Macau courts, since the obligations which ensue from a contract must gravely breach the principle of good faith and must not arise from the normal course of the business at hand,” said the lawyers.