- William Kanaan
COVID-19 and force majeure clauses
Commonly found in contracts, force majeure clauses can alter obligations and/or liabilities when an extraordinary event or circumstance beyond the control of the parties (e.g. acts of God, flood, terrorism, pandemics and so on) prevents one or all of them from carrying out those obligations. Depending on their precise wording, their effect can be to excuse the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time for performance; or giving that party a right to terminate the contract.
Is the COVID-19 crises a force majeure? You will need to carefully review the language used in the clause which should detail the events or circumstances in which it will apply.
Subject to the precise wording of the clause in question:
wording that includes “epidemic” and/or “pandemic” will probably cover COVID-19;
other events or circumstances such as “acts of government,” “acts of god,” “acts of nature” and “civil emergency” (among others) may well cover coronavirus; and
events stated to be “beyond a party’s reasonable control” are likely to cover COVID-19.
It is important to emphasise that:
the wording used in the provision must be carefully interpreted and
set against the facts in question and
weighed against the party’s ability to perform its obligations under the contract
before coming to a conclusion.
Note that no force majeure COVID-19 cases have come before the courts to date, so there is no judicial guidance on the issue.
The principle of mitigating loss applies to force majeure clauses.
Force majeure cannot be relied upon to avoid making payments under a contract if the goods or services can still be supplied and the mechanism for the buyer to make payment is still in place – this is to be distinguished from the situation where COVID-19 has disrupted the supply of services/goods or adversely affected the buyer’s finances.