The outbreak of COVID-19 has caused significant disruptions to supply chains with many businesses finding it difficult or impossible to fulfil their contractual obligations. As a result, force majeure provisions are coming into sharp focus as an increasingly attractive option for parties looking to avoid liability where, through no fault of their own, they can no longer perform their contractual obligations. But what is a force majeure clause?
Force majeure clauses are contractual provisions altering the parties’ contractual obligations and/or liabilities when an extraordinary event or circumstance beyond their control prevents one or all of the parties from fulfilling those obligations.
Whether a particular force majeure clause relieves a party of contractual liability will depend on the precise wording of the clause, the circumstances listed in the clause where a party is excused from performing their contractual obligation and the situation that has arisen.
Although each force majeure clause will vary and must be considered on its own terms, there are various common elements, such as:
- the occurrence of unforeseen supervening events
- the impact on performance
- the contractual consequences where the clause is triggered; and
- the procedural steps to meet the contractual consequences.
The onus is on the party relying on the clause to show that it has been engaged in the particular factual circumstances.
Post COVID-19 contracts
Unfortunately, it is more than a mere possibility that COVID-19 may not be the last pandemic we experience in our lifetimes. Going forward, one of the contractual changes we should expect in the post COVID-19 era is a term in force majeure clauses which specifically covers pandemics, epidemics and other similar occurrences, in the same way that terrorism became a standard force majeure event after the terrorist attack of 11 September 2001. It will take careful drafting to allocate the precise scope of risks in relation to future pandemics, whilst taking into account the key principles that render force majeure provisions enforceable.
For advice and information on the use and enforcement of force majeure clauses, contact corporate lawyer, Evangelos Kyveris, today.
Note: This is not legal advice; it provides information of general interest about current legal issues.