Force Majeure: What does this mean and how can it help me?
As a result of the COVID-19 pandemic, many businesses are struggling to comply with their contractual obligations and are looking to find ways to relieve themselves of their contractual obligations, whether this be via a contractual clause, or insurance cover. This article considers the impact of a force majeure clause in a contract and the circumstances where it may be relied upon.
What is Force Majeure and can it help me in this Covid-19 crisis?
Commercial contracts usually include a number of clauses which appear at the end of the contract, which together are often referred to as “boiler plate” clauses. Boiler plate clauses are found in most commercial contracts, regardless of the subject matter. It is often the case that boiler plate clauses are not given the same amount of attention to detail as other provisions in the contract such as payment terms and service obligations, due to their perceived “standard” nature. However, as we are seeing from the currently, a well thought out force majeure clause could be invaluable in helping businesses relieve some of their contractual obligations.
What is the purpose of a Force Majeure clause?
The force majeure clause is intended to protect a party who is, for example, obliged to provide goods or services if an event occurs beyond its control. Such events should be defined in the contract and often include things like acts of war, terrorism and “acts of god” such as floods, earthquakes and other natural disasters. A pandemic could also be included in this list.
If the protected party is unable to complete their obligations under the contract as a result of the force majeure event, the force majeure clause normally protects that party from liability which arises as a result of being unable to fulfil their contractual obligations.
Due to the unlikely chance of these types of events occurring, many parties to a contract spend little time considering what type of remedies might be appropriate in the event that a force majeure event occurs, as many assume that these clauses are highly unlikely to be triggered.
How does this apply to Covid-19?
If you have a force majeure clause in your contract, then this may help you if you are unable to fulfil your contractual obligations as a result of Covid-19.
First, you would need to consider whether the drafting includes a pandemic as a force majeure event, which is more likely if pandemic is included in a specific list. If a pandemic is covered by the clause, you would then also need to consider whether the pandemic has impacted you in such a way that you can no longer fulfil your obligations. Specifically, if a pandemic is included but you are still able to perform your obligations then you will not be able to rely on the clause.
What is the effect of relying on the force majeure clause?
If the force majeure event renders the contract impossible to perform, the contract may be rescinded completely.
However, a well though through force majeure clause may include other options in the event of a force majeure event, for example, the ability to delay performance until such time as normal service may be resumed, without incurring liability as a result of the delay.
How can Z group help?
If you need help understanding the force majeure provisions in your contracts, or would like help with putting new force majeure provisions in place, we can assist.
Contact us on 020 8944 1180 for more information, or email us at firstname.lastname@example.org.