Force Majeure Clauses and COVID-19

The impact of COVID-19 has meant that many events, services and goods cannot be performed, delivered or produced due to government guidelines and legislation. Given this, a vital question to be answered is whether a force majeure clause can exclude a party from performing its obligations on time or at all, due to COVID-19.

What Is a Force Majeure Clause?

A force majeure clause is a clause that suspends, and may bring to an end, the performance of obligations under a contract where a party is prevented from performing these obligations due to events outside of its control. For example, the clause will set out a list of circumstances in which a party is excused from performing its obligations and the contractual consequences that will follow such a clause being triggered.

Although these clauses are typically standard clauses, they vary considerably from contract to contract, depending on what the parties agreed. Hence, when it comes to deciphering whether or not such a clause is triggered by COVID-19, it will depend on the particular terms set out in the contract.

The key question for many individuals, as well as companies, who are trying to understand their contractual position, is whether or not COVID-19 is a force majeure event.

Is COVID-19 a Force Majeure Event?

The definition of a force majeure event within a contract tends to be either a list of specific events or a broad range of general criteria. Within law, “force majeure” has no specific definition so whether or not COVID-19 satisfies the definition will be contract dependant.

Given the current unprecedented times that we are living in, it seems likely that courts would be generous in their rulings in relation to whether or not COVID-19 falls within the definition, especially when it can be said that parties have encountered genuine difficulties in performing their contractual obligations. However, such parties will still need to show that their non-performance, or late performance, was truly outside of their control and could not have been prevented or mitigated.

It is important to recognise that even if a force majeure clause is found to have been triggered by COVID-19, this does not necessarily mean that the party/parties trying to rely on the clause will be protected entirely from liability for failing to perform or delay in performance.

Contract Specific Factors

It is common within force majeure clauses for particular words to be used to specify when the clause will be triggered. The words used within the contract are of the utmost importance when it comes to deciding whether or not the clause is triggered.

For example, if the clause states that performance is “delayed”, this is not as onerous as if it said “prevented”. When it comes to proving that the clause has been triggered, if “prevented” is used then it will be much harder to prove as this essentially means “unable to perform”. It would not be enough that the contractual obligations are more difficult to perform, more expensive or less profitable. Whereas, if “delayed” is used, it is not necessary to show that the obligations have been prevented from being performed, just that complying as quickly as required under the contract is substantially more difficult.

Overall, if the force majeure clause that you are aiming to rely on uses wording referring to “delayed” performance, you are more likely to be able to rely on this to postpone your obligations or even terminate your agreement than you are if the clause states “prevented” performance.

Conclusions

Firstly, it is important to consider whether COVID-19 would be covered by the definition of force majeure within the contract in question. Even if a force majeure clause does not list “pandemic” as a triggering event, it is likely to be caught within the general scope of “events beyond your control”, unless the contract was entered into after the breakout in Wuhan became known worldwide. If this is the case, then the specific contract would need further consideration.

Secondly, if the clause is found to cover COVID-19, then it needs to be decided whether the parties will be released of their obligations and the agreement terminated or whether their obligations will just be postponed. It is more common for the parties’ obligations to be postponed.

Finally, as each contract is drafted on its own terms, it is important that you understand your rights and obligations before you act. If you wish to discuss a contract to which you are a party to determine the extent of your obligations, please contact our corporate and commercial department.