Covid-19 will likely trigger a force majeure clause in most of the contracts affected. But, it is important to understand what the conditions are for that clause to be enacted. A force majeure clause is a contractual term that allows a party to a contract to suspend or terminate the contract if they are unable to fulfill their obligations due to an unforeseen event such as a natural disaster, or a political or social event that makes it impossible to carry out the contract as written.
Before moving ahead, let us see in detail about force majeure clauses.
What Is A Force Majeure Clause?
Force majeure clauses are contractual clauses that alter parties’ responsibilities and/or obligations under a contract when an exceptional circumstance or event beyond their control limits one or all of them from accomplishing those obligations. Force majeure clauses are used in contracts to excuse a party—or, in some cases, all the parties—from liability for not being able to perform their obligations under the contract, or to excuse them from performing the obligations at agreed-upon times and in the agreed-upon ways. This is because something unexpected, unforeseen, and usually outside of the parties’ control, preventing them from doing so.
For instance, if a force majeure occurs during a contract, the contract may be suspended or terminated. The extraordinary event or circumstance must be beyond the parties’ control. This means that the parties must not have done anything to cause it. If a party can show that an event was caused by the other party, such as government regulation, the event is not considered a force majeure.
Is COVID-19 A Force Majeure Event?
Terrorism, war, hurricanes, earthquakes, acts of government, epidemics, or plagues come under the force majeure clauses. The term epidemic or pandemic clearly shows that force majeure clauses cover Covid-19.
What Must Be Shown To Rely On A Force Majeure Clause?
A party attempting to rely on a force majeure clause must show that:
- the force majeure occurrence was the reason for the incapability to perform or slowed performance;
- the non-performance was because of events beyond the control; and
- there were no consistent steps that could have been taken to evade or mitigate the situation or its consequences.
The Procedure For Relying On The Force Majeure Clause
An organization attempting to rely upon a force majeure clause must comply with the procedural obligations under the contract, like a necessity to provide notice of its purpose to rely on the clause to another party within circumstantial timescales, including any conventionalities needed for the service of notices. Also, some clauses may need updates to be provided or/and an express obligation to mitigate.
To know about the impacts of COVID-19 pandemics, force majeure, work stoppages, labor shortages, disruption of supply chains, and shortage of needed safety equipment and supplies, attend the Compliance Prime webinar.