Force Majeure and SARS-CoV-2 (a.k.a. Covid-19)
What is Force Majeure?
Force Majeure is a clause that is premised primarily in contract law. It may also be referred to as an ‘Act/s of God’. Tortious law and insurance law are other areas of law where the notion of ‘Act of God’ may be relied on. This article will discuss only Force Majeure in the context of contract. As the name suggests, Force Majeure refers to events that occur beyond the parties’ control. Such events must not have been reasonably foreseeable, are not common occurrences and must be more than a mere interference to a party’s ability to perform their contractual obligations.
How and when does it apply?
Force Majeure is a clause commonly adopted in contracts for transport and shipping industries. However, it may be applied to contracts in general, insurance, business dealings, rental agreement etc.
For it to apply and to be relied on: The contracting parties must expressly include the clause within their contract. If it is included, the clause must establish how it is to be relied on and identify the contracted parties’ options moving forward (i.e. termination of contract, freezing and/or putting a hold on performance obligations).
If the clause is not included in the contract: Unfortunately, a party cannot seek to rely on Force Majeure and seek recourse. That is, it is not a generally accepted implied clause that applies to all contracts automatically or by inference. Nevertheless, if a party is in this position, other avenues may be available, such as termination of contract by frustration, or attempting to renegotiate the contract.
Does SARS-CoV-2 amount to an Act of God?
SARS-CoV-2 is formally classified as a pandemic. This means that the pandemic classification of the virus positions it to be one of the worst viruses exposed to humans. Couple this classification with the rarity and the overarching implications the virus is having on the world and economies, one may reasonably deduce that the virus and its impact amounts to an Act of God.
Can you rely on force majeure?
You may seek to rely on force majeure if you satisfy the following:
- There is an express clause in the contract dealing with Act of God or similar circumstances which are beyond the control of all parties;
- The event is one that is not common, reasonably foreseeable or held to be anticipated during general business undertakings (must be more than mere delay or inconvenience); and
- You have notified the other contracting party/ies in accordance with the clause.
That is not to say you may be able to rely on exercising Force Majeure, rather, the caveat is that all cases are different and are determined on a case-by-case basis.
If you are having trouble with contracts or would like to discuss your position and options available to you under contract, please contact our office.
