On March 11th 2020, the World Health Organization officially declared the COVID-19 outbreak as a Pandemic. The spread and rate of infection has made the people’s daily routine and life turn upside down. Several countries have imposed mandatory lockdowns in their jurisdictions while others have come out with strict guidelines for people to stay and work from home.

Given this upheaval, businesses have slowed down, or halted and people are finding it difficult to finish pending projects and contracts. This has caused a sharp increase in the number of contract violations, delinquencies, non-performance of duties and an inability to fulfill obligations. Contracts and transactional documents have now come under the spot light and are being reviewed in order examine their efficacy and safety-net in the case of a pandemic. Specifically, the Force Majeure clause has been taken into consideration for contracts. People all over the world are trying to understand whether the pandemic of COVID-19 would be covered in the contract; more importantly, people are trying to understand what would the clause would have to include in order to encompass the pandemic of COVID-19.

What is the Force Majeure Clause?

A force majeure event refers to an event occurring which is outside the reasonable control of the parties and prevents either party from performing their obligations and duties under the contract.A force majeure clause is drafted in order to protect or relieve a party from any liability arising from the inability to fulfill their contractual obligations, due to circumstances beyond their control. There are several forms and formats of a force majeure clause ranging from all-encompassing to a specific clause referring to particular events that would be covered by the clause.

In order to invoke the Force Majeure Clause, it is necessary to fulfill the following requirements:

The force majeure event was beyond the control of the parties ;

; The force majeure event has affected either party’s ability to perform their obligations under the contract . A task becoming more difficult or expensive does not usually constitute an “inability to perform”. The event must be such as to make the performance of the contract impossible;

. A task becoming more difficult or expensive does not usually constitute an “inability to perform”. The event must be such as to make the performance of the contract impossible; The affected party has taken reasonable steps to mitigate the event or its consequences.

Typically, a Force Majeure Clause provides for certain steps and requirements for the party to fulfill before they can avail of the protection under this clause. This can be a time period of notice (“The affected party shall notify the other party within a period of 30 days from the …”), the method of notifying the party, the type of event covered under the clause, etc. If the event is permanent or prolonged to an unknown period of time, the clause may also allow either party to terminate the contract.

Is a Pandemic Covered By A Force Majeure Clause?

It is necessary to understand that the scope of a Force Majeure Clause primarily depends on how it has been drafted. There are several formats used in a Force Majeure Clause however, in general practice, the definition of a Force Majeure Event is provided. This may be an exhaustive or an inexhaustive list and it may or may not include certain events such as acts of God, floods, epidemics, pandemics, government acts, property destruction, etc. It can also be an all-inclusive clause which specifies “any act which makes it impossible for the parties to fulfill their obligations…”.

Depending on how the clause has been drafted, the party has certain options in the case they have incurred liability due to the COVID-19 Pandemic:

If you would like additional information on the how force majeure is being treated in different countries, please click on the link below:

https://www.kpalegal.com/international-perspective-on-force-majeure-in-the-light-of-covid-19/

What are the Procedural Requirements to Invoke the Force Majeure Clause?

As specified above, a standard Force Majeure Clause often has a strict time bound notification period. They also contain a provision allowing for the termination of the contract by the party (ies) if the event is prolonged or permanent.

How Does the Force Majeure Clause Help the Affected Party?

When the Force Majeure Clause is invoked by the affected party, the usual remedy available is that the party may be excused from fulfilling its legal obligations or liabilities as per the contract, without any damages.

This clause may also provide an extension of time to fulfil your obligations, suspension of time, or even termination of the contract if the event is prolonged or permanent.

The right to terminate the contract can prove to be beneficial as it provides the opportunity to renegotiate the terms of the contract. Again, the remedy and help afforded to the party all depends on the drafted clause.

Measures To Consider w.r.t. Breach of Contract and COVID-19

Individuals, corporations and other organizations must take certain risk management methods in order to protect their business and interests. This is important from both the perspective of a party who is unable to perform their obligations as well as the other party whose rights are being violated.

All contracts, especially cross-border transactions, must be reviewed in order to assess the rights and obligations of the parties as well as to understand the protection given to the parties in the case of a pandemic or any other such situation.

All contracts without a force majeure agreement should be re-negotiated and amended in order to insert such provisions.

Corporations and other organizations should have their contracts reviewed and checked in order to ensure that both parties are and have been in compliance with it. Alternative methods, in case of an event not covered by the force majeure clause, should be found to protect the parties from liability.

Matters relating to the transaction or business should be communicated via e-mail. If there is verbal communication, the same should be written down and accepted by both parties (can be in the form of Minutes of Meeting). All such communication between the parties should be recorded and kept. This will he keep a record of all transactions and compliances of the contract.

In order to ensure protection and compliance, detailed research memos or legal opinion should be acquired on the force majeure provisions present in the contracts and how such provision can be put into effect.

We hope understand how difficult and confusing these times are and how important it has become to bring clarity to certain aspects of law. It is important to take property precautions and risk management methods to prevent any unnecessary liability or disputes.

Disclaimer: This note/mail should not be used as a substitute for obtaining legal advice from any attorney/lawyer/advocate licensed or authorized to practice in your jurisdiction. Nothing in the above information is intended to create an attorney-client relationship and nothing written constitutes legal advice.