COVID-19: Force Majeure Clauses

Given the current disruptions caused by COVID-19, many businesses may be considering whether COVID-19 constitutes a force majeure event. The wording of the relevant force majeure clause in a commercial contract will be vital in determining whether a force majeure event has occurred.

The contract must contain an express force majeure clause which covers the circumstances in question in order to be relied on. In the absence of an express clause, the common law doctrine of frustration may apply. However, frustration will only apply in certain limited circumstances where performance of the contract has become impossible.

Force majeure clauses are usually inserted into commercial contracts to relieve contracting parties from their obligations under the contract, or to suspend the performance of their obligations due to the occurrence of certain events or circumstances which are beyond the parties’ reasonable control. For example, a natural disaster may constitute a force majeure event.

In the current global pandemic, if a contract contains a force majeure clause, the parties must consider whether the clause is triggered by the COVID-19 outbreak. This will ultimately depend on the proper interpretation of the clause, whether the outbreak was foreseeable at the time of the contract and if COVID-19 has hindered the performance of the contract or made performance of it impossible.

In seeking to rely on a force majeure clause, it is important that a party to a contract also complies with any other additional obligations contained therein, such as notification requirements or a duty to mitigate the impact of the force majeure event.

In light of the above, businesses should review their commercial contracts with their legal advisers to determine if any of their insurance policies cover the loss incurred and also consider the scope of any force majeure clauses in new and renewed contracts.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail, please feel free to contact Joe McVeigh or Lee Taren in our Corporate Department.

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.