Published on September 20th, 2021 | by Newt Rayburn0
Force Majeure Clauses In Loan Agreements
Finally, the borrower must try to mitigate the effects of the force majeure event. The mitigation obligation requires a party to take appropriate measures to address the situation in which it finds itself, for example by seeking other sources of funding, such as the above-mentioned public support schemes. Since the type of force majeure serves as an excuse for the performance or fulfillment of certain time-related obligations, the claimed event must result in an actual delay (or inability to perform) in addition to the occurrence of an event that would be included in a definition of force majeure. The occurrence of the event in itself, without delay or impossibility of performance, does not justify any excuse for the performance. Often, construction loan contracts provide for a daily extension of the final completion date of the project for each day of delay actually caused by the force majeure event, usually with a maximum number of days of delay allowed, often 120 or 180 days, so that, in any case, and regardless of the applicable force majeure event, the project must be completed within 120 or 180 days from the set completion date. Few could argue that the devastating effects of COVID-19 are not covered by this characterization; However, given that this is a purely contractual term, whether COVID-19 is considered such an event depends on the wording of the clause in question. The APLMA Standard Credit Agreement contains a standard form definition of what would constitute a MAC. The first part of the definition is usually the most negotiated. It covers the situation in which “there are significant adverse effects on the activity, operation, ownership, condition (financial or otherwise) or prospects of the borrower group as a whole”. In the absence of a concept of implied force majeure clause in the common law, the actual language of the clause, if included, is decisive.
In the absence of a force majeure clause, a court would decide, on the basis of other available justifications for non-performance, such as impossibility and frustration, whether a party concerned should be exonerated from performance of the contract. To determine impossibility, it is not enough to find that an event simply made performance more expensive or more difficult. . . .