The outbreak of COVID-19 has been a test of government response, infrastructure, public cooperation and resilience. However, it is also a test of the effectiveness and scope of ‘force majeure’ clauses in a number of legal agreements, and its ability to be enlivened as a result of the pandemic.
What is a force majeure clause?
A force majeure (French for “superior force”) clause is a contractual tool, used to address the non-performance of the parties’ obligations, generally under unforeseen circumstances beyond the reasonable control of the parties (called the force majeure event). In the event a force majeure event occurs, leading to non-performance of obligations under the contract, the effect of the clause may be to suspend the contract, excuse non-performance, or in the case of prolonged force majeure events, terminate the contract from the date of the event.
The scope of a force majeure event
Unlike the common law doctrine of frustration (which can apply even if the contract contains no force majeure clause), force majeure clauses are a creature of contract. Its effectiveness and scope will depend on the way in which the clause is drafted and in particular, the way in which the force majeure event is defined. Contracts may provide a general description of the force majeure event (e.g. ‘circumstances beyond the reasonable control of the parties’) or set out a long list of events which will constitute force majeure events. For example, the force majeure clause of major online retailer, The Iconic, lists the circumstances outside their reasonable control as including, “lightning, fire, flood, extremely severe weather, strike, lock-out, labour dispute, act of God, war, riot, civil commotion, malicious damage, failure of any telecommunications or computer system, compliance with any law, accident (or by any damage caused by such events)”.[1]
Many force majeure clauses do not contemplate health-related events, such as viral outbreaks, epidemics and/or pandemics – many focus on natural disasters, wars and acts of terrorism. These contracts will be tested during the COVID-19 pandemic, as it becomes difficult or impossible for the parties to perform their obligations as a result of travel restrictions, quarantine measures and other government interventions.
COVID-19 – a force majeure event?
Whether or not a viral outbreak such as COVID-19 is considered a force majeure event turns on the particular force majeure clause in question. Force majeure clauses that exhaustively define force majeure may not include pandemics, and may mean that a contract is not capable of termination or suspension on this basis – or may not be capable or termination or suspension until the contract is affected by something that is listed (such as compliance with laws, like the soon-to-be legislated ban on gatherings of more than 500 people).
On the other hand, a force majeure clause that defines the force majeure event more generally (‘circumstances beyond the reasonable control of the parties’), is more likely to capture COVID-19 related disruptions. In cases where there is doubt about whether the force majeure clause will apply to the current disruptions affecting the contract, parties may wish to proactively renegotiate the terms of the contract, temporarily altering the parties’ obligations under the contract in light of the outbreak.
The future of Force Majeure clauses
The outbreak of COVID-19 is the first world event in a long time that has so broadly affected businesses and trade, and which has caused businesses to actually look at the force majeure clauses in their contracts. Some businesses will be surprised or disappointed to learn that those clauses might not give them the protection they expected. However, we predict that force majeure clauses in future contracts will be drafted to include epidemics and pandemics, learning from the lessons of current events.