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Force Majeure (COVID-19)

The coronavirus COVID-19 has caused delays and uncertainty for corporations throughout China, and those who rely on subsidiaries and suppliers in China. Due to the China’s epidemic control measures which range from the shutdown of non-essential production to the mass quarantine of travellers, many firms are facing growing uncertainty and costs which they may seek to mitigate contractually. The first option many firms look at, is whether they’re covered by a force majeure clause, or even if their contracts contain a force majeure clause.

A force majeure clause generally allows a party relief if a force majeure event materially impacts, or renders impossible, the performance of the contract. This relief is usually the suspension of the parties' obligations under the contract during the force majeure event, and, if the event continues for a certain period of time, the right to terminate the contract.

In order to obtain this relief a party will usually need to:

  1. prove that the event that has materially impacted, or rendered impossible, the performance of the contract, falls within the definition of force majeure; and

  2. comply with any notice provisions, or other preconditions (e.g. taking steps to mitigate its losses), specified by the force majeure clause.

Invoking a force majeure clause is not cut and dry procedure however, there are a few questions which must be considered.

Is there a force majeure clause in the contract?

A force majeure clause can only be relied upon if one is included in the specific contract.

Is the force majeure clause applicable to COVID-19?

Even if a force majeure clause is included in the contract, it may not mean it can be invoked during COVID-19 to provide relief. Force majeure clauses typically refer to specified events. Whether the COVID-19 epidemic constitutes a force majeure event is a matter for interpretation that requires legal advice on individual contracts, rather than advice given as a whole. Naturally, it is very unlikely that the standard force majeure clause refers to COVID-19 specifically, however, it may refer to events such as pandemics or government ordered work stoppages, in which case it is possible to argue that the outbreak constitutes one or more of those specified force majeure events.

Some common force majeure events are;