Force Majeure and ‘Frustration’ – An Update

Force majeure – clear words – strictly enforced against the party claiming – misleading or deceptive conduct where falsely claimed – clear causal connection between event alleged and inability to perform – post-commencement events only –  inconvenience or subsequent commercial disadvantage   unlikely to be sufficient unless clearly allowed for

Frustration – impossibility of performance  – an  unexpected event  – can’t rather than  won’t – force majeure may preclude availability of  frustration

Recent global events have renewed interest in contractual concepts such as  force majeure and frustration. There was a similar response   during the COVID pandemic and after the commencement of the Ukraine war, so a review of some cases that arose out of these events may be timely.

SOME  BACKGROUND

Classical Contract Law

The existence of a promise is central to classical contract law. Parties of equal bargaining power are expected to have considered their positions prior to entering into their bargain, which they enter freely. So to be  relieved of one’s obligations is a serious  matter and one, the Courts will not entertain lightly.

However even in classical contract law, there are circumstances where parties can be relieved of, or at least suspended from, having to perform and this Update deals with two of these: force majeure clauses and the contractual doctrine of frustration.

The  notion of being kept to one’s promise  is so ingrained in contract law that legislation was required to give protections to weaker contracting parties, for example the unfair contract provisions in the Australian Consumer Law. An illustration of how these provisions  can apply in  the force majeure context is Australian Competition & Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2002] FCA 928. This was a consent-based unfair contract terms proceeding where Fijifilm conceded that   some of its standard form contract terms were unfair, one being a force majeure clause with provisions that were available to Fijfilm, but not the customer. Of note, force majeure was seen as a benefit that should be open to both parties.

As will be seen in the case reviews in this Update, at first glance, two of the force majeure cases discussed seem legally inconsistent.  However, as I suggest below, upon a closer analysis, the inconsistency disappears and the cases are a further illustration of the nature and concept of force majeure  in contract law.

Force majeure

1. Australian contract law does not recognize a general doctrine of force majeure so it can be invoked only where there is a force majeure provision in the contract.
2. Generally, the clause defines what amounts to a force majeure event, sets out a mechanism for giving notice of a force majeure event and then provides what may  follow next, whether it is suspension  or termination of some or all of a party’s obligations under the contract or some relief from payment such as rent abatement.  In addition, there may be  power to bring the contract to an end if the force majeure continues beyond a specified period. There are often  mitigation obligations and generally there is a focus on minimizing any cessation of performance. However, how the provision operates and its effectiveness in the face of adverse business circumstances will depend upon its content. In contrast, ‘frustration’ is a Common Law contract doctrine.
3. As force majeure clauses relieve the party invoking the clause from the burden of affected obligations under the contract, they are construed strictly against the party seeking to invoke the clause with the Court having to be satisfied that a clear intention to excuse performance is present.
4. The position is well summarized by Justice Croft in World Touring Melbourne v Australian Grand Prix Corporation [2024] VSC 521 at [204]:

A force majeure clause is a mechanism to reallocate liability in respect of performance of an obligation that is prevented, hindered or delayed due to factors outside the control of a party and avoids any such failure from becoming a breach of the agreement. At common law, ‘force majeure’ is not a term of art. The effect of such a clause depends in each case on the words used. The particular content of the concept of force majeure in a given case is determined requiring ‘close attention to the words which  precede or follow it, with due regard to the nature and general terms of the contract’. It is not to be determined by reference to some generalised a priori concept of what force majeure means. In other words, as with any contractual provision, such a clause falls to be construed by reference to the text of the clause having due regard to the nature and general terms of the agreement (footnotes omitted).

5. Further in Re The Phosphate Mining Corp of Christmas Island, unreported (Federal Court of Australia, Gallop J, 16 August 1990) at 16 per Gallop J:

 “Force majeure is a civil law concept and it is unusual for a contract simply to provide for suspension or extinction for force majeure simplicitor.The person relying on force majeure as an excuse for performance bears the burden of proof.  He has to establish a causal connection between the force majeure and his failure to perform. The mere fact that there is some sort of supervening circumstances which would make performance more expensive will not enable one to rely upon force majeure”

6. To be effective, force majeure clauses must identify clearly those events that will trigger the relief available under a force majeure Sometimes those events will include unexpected adverse economic circumstances. However, where the thrust of the term is inability to perform and adverse economic circumstances is not expressly listed as a force majeure event, the cases state that economic or commercial hardship is not enough.
7. Given the above, it is clear that great care must be taken to draw a  notice that will enliven the clause. The causal connection between a defined circumstances and the event relied upon must be direct and clear. So while a clause may be enlivened by ‘war’, if the proximate cause of a party’s inability  perform is due to a reluctance to pay increased supply costs or seek alternative sources of supply after an outbreak of hostilities, that may not suffice as they are commercial decisions. Likewise, if due to a pandemic, a hotel chain decides upon a room shutdown policy independently of any government directive to do so. Indeed, in most cases, as a practical matter, ‘war’ will probably only be enlivened if hostilities occur at  a place where the contract is to be performed and by their nature, directly  affect performance. Hostilities  that set in chain a series of adverse business consequences may be too remote. However the Queensland Alumina case below is an example of a subsequent event that itself  can be a force majeure.

Falsely claiming Force Majeure: misleading or deceptive conduct

8. Further, as the availability of force majeure depends upon the terms of a contract, it is not a doctrine that can simply be summoned up or applied when commercial circumstances change and a party no longer wishes to be bound. Indeed, where that is attempted without any legal basis, severe consequences can follow. So, on 29 June 2023, Blue  NRG Pty Ltd gave court enforceable undertakings  (s 87B undertakings) to the Australian Competiton and Consumer Commission regarding misrepresentations Blue had made to 543 fixed rate small business customers regarding its power to increase certain electricity rates under their fixed price contracts by reason of force majeure.
9. However the agreements Blue had with these customers either did not contain a force majeure clause at all or contained one that did not apply in the circumstances. It followed from this that in making these statements, Blue had been engaging in misleading or deceptive conduct contrary to the Australian Consumer Law. The undertakings protected the customers  from price increases for the balance of their contracts and also enabled compensation for customers who had left Blue after its notification of the alleged increases and then had to buy electricity elsewhere at rates higher than their  rates with Blue (ACCC Media Release: ACCC intervenes to ensure 543 businesses avoid higher electricity bills, 30 June 2023).

Frustration

10. The doctrine of frustration operates where there has been a fundamental or radical change of position in the contractual environment leading to impossibility of performance. Examples where it has been applied include agreements affected by the cancellation of Edward VIII’s coronation. All future contracts involve uncertainty regarding the environment for performance for the period of the contract. It has been said that to excuse a party from performance simply because events have turned out to a party’s disadvantage would strike at the nature of contract itself (Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169, 187 Latham CJ). Therefore, it is hard to prove frustration.
11. For an event to be regarded as a “frustrating event,” generally, it must have been unforeseeable at the time the contract was entered into. Consequently, a contract cannot be frustrated by circumstances which were in existence at the time of entry into the contract, by an event which was likely to occur or, even, by an event which although not likely to eventuate, would have been considered a possibility by the parties. (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales(1982) 149 CLR 337 at 358.). Further, the Courts may be more reluctant to apply the doctrine of frustration where there is a force majeure clause on the basis that by including  such a clause, the parties are taken to have agreed the circumstances in which a party may be excused from performance.
12. A COVID illustration of the limits of the doctrine of frustration arises indirectly in the High Court case of Laundry Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd [2023] HCA 6 (8 March 2023). This was a case concerning the sale of a hotel business. The vendor was required to continue to operate the business until settlement however during the period, its ability to do so became restricted during the COVID pandemic due to NSW public health orders and the purchaser then tried to avoid completion on the basis that the vendor was in breach of agreement or that the contract had been frustrated. In response, the vendor argued that it had complied with the relevant provisions insofar as it was able to do consistently with the law. The business was still in existence  and   the common intent or purpose of the parties, which was to sell and purchase the business, had not been frustrated.
13. By the time the case got to the High Court, frustration was no longer being argued and the case had become one of contractual construction. With this in mind, the High Court said that the purchaser could not attempt to re-write the relevant business operation provisions to create an obligation that the vendor would not have been able to meet, where no such obligation  existed and frustration was not open ([41] and [46]). The case shows that despite the restrictions imposed due to COVID, where the essential ingredients of an agreement are still present  and  the subject of the sale still in existence, the parties will be held to their bargain even if events fall out in unexpected ways. In contrast, once Edward VIII’s Coronation had been cancelled, the essential purpose of the agreements had been frustrated.

SOME CASES

LONG  TERM GAS SUPPLY CONTRACT – FORCE MAJEURE & FRUSTRATION

14. Australian and English contract law regarding frustration and the interpretation of force majeure clause are very similar so at this point, it may be worthwhile mentioning an English case dealing with a long term supply contract: Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm.) 2005 WL 2706910.   The case  shows how a party’s own statements regarding supply at a higher rate can be treated as evidence  that performance is not impossible.  The contract in issue was a long term gas supply contract to supply gas to Heathrow Airport. In 2005, Total served Thames with a notice under a force majeure provision which said that due to increasing gas prices, it had become uneconomic to continue to supply gas to Thames.
15. Clarke J rejected Total’s force majeure claim saying among other things:

The fact that it is much more expensive, even greatly more expensive for it to do so, does not mean that it cannot do so. (at [50]).

16. The judgment also contains useful observations about force majeure and frustration.

“4 This conclusion [that force majeure did not apply] is consistent with a line of cases, both on force majeure clauses and on frustration….to the effect that the fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure or frustration. ……….

……….

6. The letter of 5^th July does not claim that Total has become unable to supply gas. It indicates that as a result of increasing prices and the price formula in the GSA, it will become ‘uneconomic’ for large parts of the year to supply gas…….At the same time it offers to supply gas at the market price. It thus indicates that Total can in fact continue to supply gas but at a loss or a lesser profit if it receives the contract price.” [at 50].

FORCE MAJEURE: RECENT CASES

Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCA 43 (“Queensland Alumina”)

17. This case concerns the effect of sanctions being applied to certain Russian entities by the Federal government consequential upon Russia’s invasion of Ukraine. The Gladstone Alumina plant was operated by Queensland Alumina Ltd (QAL) pursuant to a Participants Agreement with three subsidiaries of a Russian company and five companies that were part of the Rio group. There were also Tolling Contracts that allocated a percentage of the plant’s capacity to each Participant and Bauxite Supply and Shipping Agreements in place.
18. In consequence of sanctions being imposed, QAL invoked step-in provisions in the Participants Agreement and  ceased to acccept shipments from the Russian Participants or to refine or deliver alumina to them. The Russian parties had sought to ensure their continued participation by offering to give undertakings to supply only third parties outside Russia who were subject to contractual prohibitions against on-supply  to Russia. The proposed undertakings  were not acceptable to  QAL and the Russian parties commenced proceedings for breach of contract.
19. A large portion of the judgment of O’Bryan J is devoted to the step-in provisions of the Participants Agreement which the judge found were correctly applied. The judge also accepted that the suggested undertakings would have been inadequate given the nature of the international alumina market. However force majeure was also invoked by Rio Tinto Alumium Ltd (RTA) one of the Rio parties regarding its refusal to supply bauxite and shipping services to the Russian parties.
20. O’Bryan J found that the force majeure provisions in the Bauxite Supply Agreements and Shipping Agreement did cover the circumstance where QAL was prevented from producing alumina for and delivering alumina to the Russian Participants. This was because the definition of a Force Majeure Event included two material events. One was “the imposition of Sanctions, including where Sanctions results in third parties refusing to provide services necessarily required by the parties to this agreement to perform their obligations contained herein”. The other was “any other cause …which is not reasonably within the control of the party claiming force majeure”. Further, O’Bryan J said that even were QAL not entitled to cease producing alumina for the Russian parties, the fact that it had refused to do so was sufficient  for RTA to invoke the force majeure provisons [381].
21. The case was later upheld on appeal (Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCAFC 142) and special leave was refused on 6 March 2025.
22. One matter of note that will be discussed further below is that when QAL first gave notice to the Particpants that it would cease supplying the Russian parties, it referred only to a provision of the Participation Agreement, not the force majeure provisons of the Tolling Contracts, and only sought to do this later. However O’Bryan J permitted it to rely on the principle that if a contracting party is entitled to cease performing a contract but gives the wrong reason for doing so, that party should  not be deprived of the existence of another justification even  if that party was unaware of it at the time [363].

World Touring Melbourne Ltd v Australian Grand Prix Corporation [2024] VSC 521 (”World Touring”)

23. This was another COVD case. It concerned a Robbie Williams concert being put on by the plaintiff that had been scheduled to take place on Saturday 14 March 2020 at Albert Park, the day before the Grand Prix was scheduled to take place. The concert was marketed and ticketed separately and was  cancelled by the Grand Prix Corporation (AGPC) the day before it was scheduled to take place.
24. The case alleged misleading and deceptive conduct regarding the effect of the Victorian Chief Medical Officer’s (Dr Sutton’s) statements and also breach of contract being breach of the right to stage the event and the implied duty to co-operate in good fatih to enable the other to have the benefit of the contract. Justice Croft found in favour of the plaintiff. Force majeure was raised as a defence but failed.
25. The events took place at a very early stage of the COVID outbreak and at that time, the primary focus was on the situation respecting individual Formula 1 teams who had just arrived from Europe where COVID was spreading rapidly. After arriving, McLaren withdrew from the race after a team member tested positive to COVID and it was likely that other teams had been exposed to members of the McLaren team. Mercedes Petronas then withdrew so there were issues about the integrity of the race without a full complement of teams which was a  concern to  the Formula 1 racing body.  However there was also a concert at the Sidney Myer Music Bowl that week end which went ahead. Ultimately, Dr Sutton  recommended that the Grand Prix be cancelled which it was. AGPC then cancelled the concert.
26. In the case, a critical question  was whether Dr Sutton’s recommendation that the Grand Prix be cancelled extended to the concert which was a separate event not involving Formula 1. Ultimately Croft J found that Dr Sutton’s position was that any cancellation was a matter for the concert organisers [216] and their evidence was that at all times, they were ready to proceed.
27. Justice Croft commenced his analysis by stating the words set out at [3] above. The judge then noted the importance of a causal connection and that ‘impracticability of performance is not generally recognized as a ground of discharge of a contracting party’s obligations’ [205]. The parties’ agreement contained a force majeure clause which required the party asserting a Force Majeure Event to notify the other party in writing as soon as practicable after the event arose  and then use all reasonable endeavours to mitigate the effect of the Force Majeure Event.
28. The judge found that at the time, there was no legal restriction on mass gatherings and that Dr Sutton had not advised that the concert be cancelled. The concert did not proceed because the defendant did not permit it to proceed [215].  The judge then considered whether if there had been a Force Majeure Event, the defendant had complied with the ‘reasonable endeavours’ provision. No formal notice was given and after considering all the evidence, Croft  J concluded ‘on no basis could it be said that WTM was given notice of or any detail in a clear and timely manner of a force majeure event in the course of that day as now relied upon by AGPC’ [216].

West End Landco Pty Ltd v Medina Property Services Pty Ltd [2025] VSC 544 (“Medina”)

29. The case concerned an agreement for lease respecting the redevelopment of a building to be used by Medina to operate an apartment style hotel business. A  fifteen year  lease  was to be entered into upon completion of the redevelopment. The initial agreement was entered into in 2017.  On 11 March 2020, the WHO had declared COVID-19 as a pandemic and shortly afterwards, the Victorian and Commonwealth governments made emergency and pandemic declarations. On 24 March 2020, the Commonwealth government closed Australia’s borders.
30. The building reached practical completion in September 2020  and  in Decmber 2020, the parties executed a lease in the form annexed to the agreement to lease.  There were three components to rent payable under the Lease with the ability to abate rent in certain circumstances. On the day the lease commenced, Medina sent a letter to West End headed ‘Notice of Force Majeure’ that referred to the COVID pandemic and gave notice of Medina’s intention to reduce or abate rent in reliance to the force majeure provisions in the lease. Further notices were later sent.
31. There were 3 lockdown periods in metropolitan Melbourne in 2021. However while West End conceded that during these periods, Medina’s ability to operate its business was affected, at no time were the force majeure provisions of the lease satisfied and Medina  was not enetitled to abate or reduce rent.
32. The force majeure provisions required that the lessee’s ability to operate the Business, as defined, was materially and adversely affected. If that was so, the lessee may suspend the whole or part of the operation of the business but must re-commence as soon as reasonably practicable after the Force Majeure Event ends. Further, as long as the Force Majeure Event continued, Base rent and some other payments could be abated in proportion to the extent the Business is reduced. If the Force Majeure Event arose,  certain other conditions were satisfied and notice was properly given, other provisions allowed for termination by notice by either party if matters continued for 6 months.
33. Over the period, the hotel always remained open however upon commencement of the lease, Medina followed a pre-existing company wide policy of shutting down rooms to save costs [184] and also introduced various ‘clean touch’ policies that required extra work and effort [188].  Then, in November 2021, more than six months after it served its first force majeure notice, Medina purported to terminate the lease.
34. Justice Delany concluded that while a pandemic had been declared in March 2020, it could not be relied upon as a Force Majeure Event in terms of the lease because it had arisen well before the lease commenced [172]. However, Medina could rely upon specific events that occurred after commencement such as government directed lockdowns after December 2020 as these were an ‘act of government’ in terms of the definition of a Force Majeure Event [176].
35. Further Medina could not rely upon the decision to shut down rooms as that decision had been made before the lease commenced [197].
36. However, the judge also found that Medina could aggregate and rely upon more than one Force Majeure Event as defined [177].
37. Turning to the operation of the force majeure clause, Delany J concluded that on the evidence, Medina’s ability to conduct the Business was not materially affected outside the lockdowns as a result of a Force Majeure Event, whether that event was an act of government or the pandemic more generally ([188] – [192]). Rather a deliberate decision was taken to block off rooms with a view to supporting the Force Majeure Event case ([193] and [202]).
38. Turning to the force majeure rent abatement notice given, the grounds relied upon were the presence of COVID-19 and the Commonwealth’s declarations, events that had occurred before the lease was entered into [205]. It did not rely upon the Victorian government lockdown directives however in the proceeding, Medina sought to rely on any valid ground it had to justify termination. The judge disagreed. The rent abatement notice did not specify any events that arose only during the term of the lease so was not a valid notice  [209]. Further the manner in which Medina had calculated the abatement did not reflect the contractual requirement that it be in proportion to the extent that the Business was reduced or suspended to due to the Force Majeure Event. Medina  relied upon other data  and methodology ([215] – [220]).
39. Finally, Delany J decided that because the force majeure notice was invalid, it could not be used as a basis for terminating the lease. There was some analysis about whether the lockdown periods could have constituted grounds for termination when read with earlier notices issued however in any event, the judge was not satisfied that Medina’s ability to operate the business was materially and adversely affected over the period ([228] – [234]).

Are Queensland Alumina and Medina juridically inconsistent?

40. Queensland Alumina and Medina diverge in their approach to whether at trial, the party relying upon a force majeure notice, is held to the defined events cited in the notice served or whether it can rely upon other events that are listed in the force majeure However, when the intent and effects of the separate force majeure provisions are considered, this juridical tension falls away.
41. In short, in Queensland Alumina, force majeure was used as a basis for refusing to supply or provide shipping services and the point was, that if there were other contractual bases that QAL could have relied upon, then at trial it was entitled to do so, applying longstanding legal principle (Shepheed v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 per Dixon J at p378 which has been affirmed may times, see Queensland Alumina, [364]).
42. In contrast, in Medina, force majeure was used as a basis to abate rent and to start the clock running to give rise to a right ro terminate after 6 months. The judge concluded that in these circumstances, the lessor was entitled to know on what basis the rent was being abated or how any right to terminate would arise  in due course to be able to evaluate whether the abatement or termination fell within the contract. Further the grounds to invoke force majeure were also material to how the relief that could  be claimed should apply, for example, the degree of any abatement (Medina, [122] – [126]). That is, in the Medina lease, any force majeure notice served had an ongoing purpose  rather than just enabling the cessation of
43. That is, these were two force majeure clauses in two, very different contracts with different purposes. The clauses were in different terms and had different jobs to do.  No juridical inconsistency arises. Instead this is another illustration of the contractual basis of force majeure.