Change is the only constant. How true is this when we see the definition of Force Majeure constantly evolving with time. From floods to earthquakes to riots to now the dreaded COVID-19. Literally speaking, force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.
Contracts attempt to cover all eventualities, so we include a term, “including such not limited to”. There are dozens of circumstances or events that we class as examples of force majeure. War, riots, earthquakes, hurricanes, lightning, and explosions, for example, are force majeure events. The term also includes energy blackouts, unexpected legislation, lockouts, slowdowns, and strikes. But a virus!
Where coronavirus causes business disruption, from fulfilment of deliveries to cancellation of events, a common question is whether commercial parties can rely on force majeure clauses in their contracts. The position will depend in part on the governing law of the contract, as the concept and effect of force majeure varies significantly across different jurisdictions.
Many legal systems have specific legislative definitions of force majeure, which apply whether or not the contract contains a force majeure clause. A consequence of having force majeure codified in a civil code is that the relevant government can, through legislation, deem an event to constitute force majeure, as the Chinese government has done in response to COVID-19 – issuing force majeure certificates.
English law differs from these civil law jurisdictions. In English law, force majeure is not defined, either in statute or under case law. And the concept of force majeure will not be implied into a contract, meaning that the parties can only rely on this concept if it is expressly covered in the contract. Whether a particular clause is triggered will depend entirely on the words that the parties have used – particularly the non-exhaustive list of events that are often included in a force majeure clause.
Suddenly this clause of force majeure that sits quietly towards the end of a contract and is hardly ever called into play is suddenly the most sought after term. What is happening in the world today, due to the Corona Virus is force majeure.
It is difficult to predict the scale, length and effect of the COVID-19 pandemic in any given country or sector. WHO has declared novel coronavirus outbreak a pandemic. The virus has found a foothold on every continent except for Antarctica. A pandemic is defined as the “worldwide spread” of a new disease. The last pandemic reported in the world was the H1N1 flu pandemic in 2009, which killed hundreds of thousands globally. The last moderately severe influenza pandemics were in 1957 and 1968; each killed more than a million people around the world. Although we maybe more medically advanced than in the past, we are also far more interconnected, with travel around the world so widespread and many more people today have chronic health problems that make viral infections particularly dangerous.
From a contractual point of view, there are some points to ponder on.
Review the wording of force majeure clauses, paying particular attention to the list of non-exhaustive events which is often included, and the consequences of triggering a force majeure.
If a long list of force majeure events is included, it is likely to be helpful (where you are seeking to rely on the clause) if pertinent wording is included such as “pandemic”, “epidemic”, “outbreak”, “crisis” or “governmental action”.
Watch out for wording in new contracts that requires that the event of force majeure is “unforeseeable”.
Contact counterparties of contracts which may be affected and discuss a possible renegotiation, or postponement of obligations, as appropriate.
Most importantly, while the world at large struggles to deal with this catastrophe, the business world should find ways and means to mitigate losses and look for solutions such as delayed performance, waiving off penalties and remote working. Plan B has never been more relevant than now.