FORCE MAJEURE IN THE WAKE OF COVID-19
On the 11th of March 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic. There are unprecedented travel, movement, and large-gathering restrictions, with reports indicating that a quarter of the world’s population is now in quarantine. In response, parliaments around the world have passed bills to inject money into their economies to fight the adverse effects of COVID-19 on households and businesses.
COVID-19 has impacted the ability of businesses around the globe to maintain operations and fulfill existing contractual obligations. The fast-paced evolution of COVID-19 gives rise to new events daily creating the need for some businesses to invoke force majeure provisions in their contracts.
When businesses wish to invoke the force majeure provisions in a contract or they receive a force majeure notice from a supplier, it can be very labour-intensive to conduct the necessary contract reviews. It therefore becomes imperative to engage or adopt the adequate measures to identify force majeure provisions within their contract portfolios and understand specific obligations towards customers and suppliers.
What is Force Majeure?
Force majeure, originally a French term which translates into English as “Superior Force”, is an important provision in corporate and commercial contracts. The term is defined as “unforeseeable circumstances that prevent someone from fulfilling a contract”.
In civil law jurisdictions, force majeure is often enshrined in law. For instance, generally civil codes provide for a definition with regards to unforeseeable events that preclude a debtor from repaying its debt.
Under English law, the applicability of force majeure is purely contractual. There is no generalised doctrine of force majeure and it is entirely up to the parties to define the events and the parties’ rights and obligations upon the occurrence of such events. Careful drafting of its definition and applicability is therefore required. Thus, whether the COVID-19 outbreak constitutes a force majeure event under a particular contract will depend on the language of the contract in question, the relationship between the outbreak and nonperformance, and the applicable law governing the contract.
What should my company do?
Monitoring the COVID-19 Developments
Continue to closely monitor COVID-19 developments and their potential impact on contractual performance, take and document all reasonable steps to mitigate, where possible, their operational impact.
Perform an internal assessment of all the major projects and services that are being or would be affected by COVID-19.
Perform a review of the force majeure provisions in the applicable contracts and establish whether COVID-19 falls under the definition of force majeure/force majeure event.
Ascertain your business’ operational needs and financial impact, if any.
Invoking Force Majeure
If your business decides to invoke force majeure, we recommend deciding who will be the point of contact within your business and having a discussion with the customer/supplier prior to issuing an official communication as provided by the contract.
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