IP SPOTLIGHT 6 APRIL 2020

CONTRACTS COMMERCIAL AGREEMENTS AND COVID-19: FORCE MAJEURE

The recent emergence of COVID-19 may amount to a force majeure event. What does this mean to commercial agreement and performance pursuant to those agreements? In some circumstances the COVID-19 could excuse performance under a contract. The question is when and what is required to suspend rights of performance under a contract.

The recent emergence of COVID-19 may amount to a force majeure event. However, there are no “hard and fast” rules, and contracts will need to be assessed on a case-by-case basis. “Force majeure” is not a standalone legal concept, so if a contract does not include a force majeure clause, there is no general right to excuse non-performance caused by an unforeseen event. A “force majeure” clause usually excuses the parties from contractual obligations and liabilities where their failure to perform is caused by unforeseen events (either natural or human) beyond their control. A “force majeure event” may be defined broadly to include any event beyond the parties’ reasonable control or it may be defined by reference to specific events (common examples include fire, flood, other natural disasters, strikes, government action, and war). As force majeure clauses are the result of commercial agreement between the parties, the events that will trigger the clause, and the effect of the clause (eg. suspension of performance or a right to terminate), are determined on a case-by-case basis, taking into account the wording of the clause and the relevant facts. To determine whether the COVID-19 pandemic will amount to a force majeure event and excuse performance under a contract, the first thing you will need to consider is whether a particular contract includes a force majeure clause, and if it does: (a) whether the COVID-19 pandemic falls within the scope of the clause; and (b) if so, what the consequences are (suspension of performance or a right to terminate the contract).

JUDITH MILLER Commercial National Practice Leader

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