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 becoming increasingly attractive options 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 alter the parties’ contractual obligations and/or liabilities when an extraordinary event or circumstance beyond their control prevents one or all parties from fulfilling those obligations.
Whether a 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 party relying on the clause must 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 concerning future pandemics whilst considering the key principles that render force majeure provisions enforceable.
Contact corporate lawyer Evangelos Kyveris today for advice and information on using and enforcing force majeure clauses.
Note: This is not legal advice; it provides information of general interest about current legal issues.