COVID-19 has impacted all aspects of our lives, from international travel to business operations. You (or your business) may find yourself in a position where you are unable to fulfil your existing contractual obligations. In this post, we look at whether and when a party to a contract can rely on a force majeure clause due to the COVID-19 outbreak.
What is a force majeure clause?
A force majeure (often referred to as an “act of God”) clause is a contractual provision that relieves the parties from performing their contractual obligation when certain extraordinary event or circumstance beyond their control arise, making performance of the contract in full impossible. Some clauses provide a list of events that fall within the scope of force majeure, such as acts of terrorism, war, strikes, or adverse weather conditions.
Can COVID-19 constitute a force majeure?
This depends on many factors, such as the wording of the clause, the nature of the party’s contractual obligations, and COVID-19’s impact on that obligation. Therefore, if you are the party seeking to reply on a force majeure clause in order to excuse your non-performance of your contractual obligations it is up to you to satisfy a court or tribunal that this is the effect of the clause.
If you want to rely on a force majeure clause, based on COVID-19, there are some key factors to consider:
i) Does COVID-19 fall within the scope of your force majeure clause?
If your force majeure clause has wording, such as "outbreak", "pandemic", "illness", or "quarantine", COVID-19 is more likely to qualify as a force majeure.
ii) Has COVID-19 sufficiently impacted your obligation?
Typically, in order to invoke the force majeure clause, the performance of the contract must become impossible. It is not enough that your contractual obligations become more onerous, or even significantly more difficult or expensive to perform.
iii) Have you taken sufficient steps to avoid and mitigate COVID-19’s impact?
If you want to rely on COVID-19 as a force majeure, then you need to make sure that you have taken all the necessary steps to mitigate (or lessen) its impact on your obligations. In the context of COVID-19, reasonable steps can include: quarantine protocols, allowing employees to work remotely, increased sanitation, travelling policies, etc.
iv) Have you met other contractual conditions prior to invoking the force majeure clause?
Force majeure clauses may also contain strict notice requirements prior to you triggering the operation of the clause. If you want to rely on a force majeure clause, make sure that you comply with any notice or other requirements so that your ability to rely on the clause is not barred.
What if there is no force majeure clause in the contract?
Courts are typically reluctant to imply a force majeure provision into the contract where no express language exists. In this situation, you may be able to rely on the common law doctrine of frustration.
The doctrine of frustration is a remedy for extreme events which have made the purpose of the contract substantively different from what the parties had originally intended when they entered into the contract.
The performance of the contract must become impossible. In other words, it is not enough that the contract becomes more onerous, or even significantly more difficult to carry out. The situation or event that has allegedly frustrated the contract must be unforeseeable at the time the contract was entered into and not be the fault of either party.
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