The outbreak of Coronavirus is impacting global markets, trade and commerce. Quarantine and travel measures have begun to impact local businesses and the supply chains supporting them. Many businesses may thus seek to rely on force majeure clauses or other contractual rights for relief from the performance of certain obligations due to the impact of the Coronavirus outbreak.
What is force Majeure
Force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes like war, natural disasters, terrorist attacks Etc that interrupt the expected course of events and restricts parties from fulfilling their obligations under the said contracts.
What does your force majeure clause actually say?
There is no single “standard” force majeure clause. Just because your business may include force majeure clauses in its contracts does not mean they are necessarily all uniform. Since the virus is a relatively new phenomenon, it is unlikely that any force majeure clauses would explicitly refer to the event of a Coronavirus outbreak. Thus the party relying on the clause will still likely need to prove that the force majeure event was not “reasonably contemplated” by the parties when making the contract, and that the event is “beyond the reasonable control” of the party seeking relief.
How can you seek / prevent relief for force majeure?
The onus is on the party seeking to rely on the force majeure clause to prove that the force majeure event has prevented, hindered, delayed or affected the performance of the contract. Generally, if a force majeure event occurs, performance of certain obligations within the contract will be suspended for a specified period of time (for example, until the Coronavirus outbreak is contained or its consequences on the contract parties come to an end). In some cases, a suspension of obligations may not be viable and parties may seek to terminate the contract entirely.
Is notice required?
Force majeure clauses vary in their notice requirements. Some require notice within a certain timeframe of the occurrence of an event of force majeure, whereas others only require prompt or “reasonably” prompt notice. In the context of the coronavirus pandemic, is notice required upon WHO’s declaration the coronavirus outbreak a pandemic? Was it when a travel ban was entered? Was it when a local lock down measures were enacted?
What if there is no force majeure clause?
If there is no force majeure clause one can rely on the doctrine of frustration which means that events beyond their control may occur which frustrate the purpose of their agreement, or render it very difficult or impossible, or as even illegal, to perform obligations under a contract.
Understanding Your Contract
Be sure to fully understand what the contract requires for one declare a force majeure event. Many force majeure provisions include procedural requirements the claiming party must abide by in order to effectively enforce the provision, including notice requirements.
By Eugene Sudi
SUDI & ASSOCIATES