Pakatan Harapan and force majeure

Since GE14, there has been a flurry of announcements by the new Pakatan Harapan (PH) government, almost on a daily basis. These announcements have ranged from feel-good measures (live World Cup, yay!) to major policies and even outright cancellation of contracts.

Query: Can any of these announcements lead to a plea of force majeure by a contracting party?

Under the PAM Form, force majeure is a relevant event which entitles the contractor to an extension of time. However, it is not an event which allows the contractor to claim for loss and expense. It is also not an event that is expressly stated to be an event permitting any party to determine the contract.

However, common law generally accepts force majeure to be a good defence to any claim for breach of contract, where the force majeure event renders performance of a contract to be impossible, and that event is unforeseen or unavoidable.

Therefore, a sub-contractor may not be able to insist on performance by the main contractor where the entire contract has been cancelled by the PH government. The sub-contractor may even be hard-pressed to claim for losses incurred in, for example, undertaking preparatory works or procuring supplies for the purpose of the sub-contract.

But the factual matrix of each individual case would clearly differ. Hence, if a contract was negotiated by the BN government on the basis of certain exemptions (eg. no GST), what happens now if SST is imposed instead (and at a higher rate) by the new PH government? What if the costing of the entire contract was predicated on the basis of the savings from the GST exemptions, whereby now the savings may not only be entirely eradicated but in fact the higher-rated SST would lead to losses for the contracting party.

Would that be sufficient to establish force majeure?

Or would the Courts instead follow the case of Trandin Aviation Holdings Ltd v Aero Toy Store LLC to hold that changes in economic/market circumstances affecting the profitability of a contract cannot be regarded as a force majeure event?

But surely a change in governmental policy cannot be equated to a change in economic/market circumstance, all the more so when it is the government that caused the change in the economic/market circumstance in the first place?

Perhaps these would be appropriate circumstances for parties to resort to mediation instead.

Kheng Hoe Advocates is a boutique law firm focused on construction disputes. We assist clients in arbitration, litigation, mediation and CIPAA cases. For queries, contact khenghoe@khenghoe.com. 

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