Global Vantage: Coronavirus and “force majeure” – when can it be relied upon?

The rapid and deadly spread of novel coronavirus has had a dramatic impact on the supply chain, leaving many businesses struggling to meet their contractual obligations.

In response, we have seen a sharp increase in parties seeking to rely upon the concept of “force majeure”, which can be used to suspend / terminate performance obligations where performance was prevented by events outside of the non-performing party’s control.

Whether a party can rely upon “force majeure”, or a similar legal doctrine, will depend on both the applicable law governing the contractual relationship and the express provisions of the relevant contract.

Where a “force majeure” clause is included in the contract, the position is relatively straightforward, with the courts approaching enforcement in accordance with the ordinary rules of contractual interpretation in that jurisdiction. However, where there is no express “force majeure” provision, the position can become more complex.

In Civil Law jurisdictions, such as France and the Netherlands, “force majeure” is codified in the states Civil Code. Therefore, to rely upon “force majeure”, it is not necessary to include an express provision in the contract. Although, many parties still choose to do so where they consider that the Civil Code’s requirements for a “force majeure” event that are too narrow / wide, or they are generally unfavourable. A benefit of codification, as seen in both China and India during the current COVID-19 pandemic, is that it can remove much of the uncertainty surrounding the classification of an event as “force majeure”, with state legislatures able to categorically label events as such.

However, in Common Law jurisdictions, including England and Wales and the United States, the concept of “force majeure” is alien. Instead, where there is no “force majeure” clause in the contract, parties will need to identify similar common law concepts that have developed in the applicable jurisdiction. This can be particularly detrimental to a party’s hopes of being relieved from their contractual obligations, as it is often the case that comparable common law constructs, such as “frustration” in the UK and “commercial impracticability” in the US, are more restrictive than their Civil Law counter-parts.

Businesses seeking to rely upon “force majeure” should first consider whether an express provision has been included in the contract. If a provision has been inserted into the contract, ensure that you have complied with any procedural requirements for reliance upon the clause. Where there is no “force majeure” clause in the contract, it will be necessary to consider the approach of the applicable law governing the contract to “force majeure”. This approach will inevitably vary, but could be particularly restrictive where contracting in a Common Law jurisdiction.

For further information on anything covered in this publication, please contact Antony Smith.