What is Force Majeure ?
Force majeure is chance occurrence or unavoidable accident scenario – a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract.
The impact of Cornoavirus is and will continue to have a huge impact on business at all levels of the supply chain; and this is predicted to rumble on well after the lockdown comes to an end.
The impact upon all contracts shall be significant and no doubt a number of disputes will commence on whether a Force Majeure clause can be invoked to excuse either party from performing under its contract on time or at all.
Below we raise a number of points in relation to Force Majeure and whether Coronavirus is classified as a Force Majeure event.
When considering your contracts you need to check/consider for the following?
- Is there a Force Majeure clause in your contract? If so:
- How specific is it? i.e. does it list a particular set or number of events that it is limited to; or
- Is it loosely worded? For example, plague or epidemic which in most circumstances will cover Coronavirus. Or an act of Government, this could include matters pertaining to the lockdown.
- Does it say that the list is exhaustive or non-exhaustive? This will be key in limiting liability where there is a list of specific events;
- You may also want to consider whether wording such as ‘beyond/outside the parties reasonable control’, this type of wording is more difficult as it will wholly depend on interpretation and will no doubt be fact specific e.g. was it as a result of the pandemic that you or another party were unable to perform the obligations in your contract? Did you attempt to mitigate?
- Was it coronavirus and or the lockdown that caused the non-performance or delay?
- Was it truly outside of your control?
- What could you have done differently to undertake your performance of the contract? Did you try to mitigate?
- Are there any mechanisms in the contract that you now need to comply with? E.g. are there any notice provisions that you must comply with? Or, did you check whether you needed to inform your contracting party before the event took place?
The question then arises as to what you can do if you can in act invoke the Force Majeure clause, normally this would mean that you are no longer obliged to comply with any obligations under the contract and therefore not be liable for any damages. There are number of other possibilities but these will of course be contract specific.
It is suggested that if you have been unable or your contracting party has or is unable to perform their side of the contract then you should consider ways within which you could comply. This can either by reducing the scope of the obligations required to be performed or alternatively in delaying the performance of it. No doubt a pragmatic approach will need to be taken by all.
This could also be a good time to extricate yourself from contracts that are no longer commercially viable and this should be considered if necessary. A word of warning here is that increased costs of performance will not be a good reason to delay or not perform; the courts do not like this.
The best way to deal with events that we face is to have sensible discussions about how each party can remedy any non-performance or delayed performance before a dispute arises.
*This blog is intended to provide the reader with an understanding of things to consider and should not be relied upon as specific advice. Each contract is different and applied in different ways to the circumstances; as such you should take specific advice.
If you’re looking to understand whether this applies to you or your business, please don’t hesitate to contact our Head of Litigation, Jagdeep Sandher.