Guidance on when contract parties affected by Coronavirus may be able to rely upon Force Majeure clauses. The purpose of a Force Majeure clause is to define events that would excuse the parties from their respective obligations under a contract.
A Force Majeure event would usually have to make it impossible or illegal for the parties to perform their obligations, although some Force Majeure clauses can be wider in scope.
Force Majeure Events
The scope of a Force Majeure clause will depend on the specific wording within a contract (that may or may not have clear wording covering epidemics and pandemics). Within the context of the Coronavirus pandemic, parties may look to rely on the Force Majeure clause within their contracts in circumstances of, for example, supply chain breakdown or the self-isolation of service providers in line with government orders or requests.
Reliance on the clause
It is the responsibility of the party seeking to rely on the Force Majeure clause to prove that (1) the event falls within the scope of the Force Majeure clause and (2) their inability to perform their obligations was caused by that event.
That party must also prove that they have taken reasonable steps to prevent or mitigate the effects of the Force Majeure event, for example by looking for alternative suppliers if the supply chain is broken. This is because, by nature, Force Majeure events must have been unforeseeable and outside the reasonable control of the parties.
The Force Majeure clause may set out a process to be followed when the clause is triggered. For example, it may impose an obligation to notify the other parties of the event or an obligation on all parties to meet to discuss the best way to mitigate the effects of the event. The process will vary depending upon what was decided by the parties when drafting the contract.
Effect of the Force Majeure clause
The effect of the Force Majeure clause should be outlined within the clause itself. Typically parties would agree that their obligations under the contract are suspended for a certain period, or until the Force Majeure event has come to an end. It is also possible for a Force Majeure clause to state that a Force Majeure event would give the parties the right to terminate. A standard effect is that once the Force Majeure event occurs, the non-performing party’s liability is removed until that event comes to an end.
If you require any legal advice concerning a Force Majeure clause, please contact us.
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