COVID-19 and Relying On The “Force Majeure” Clause

Much social and economic disruption has been caused by the declaration of COVID-19 as a global pandemic, particularly in supply chains, business operations, and sales. As a result, many individuals and businesses have found that they are struggling to fulfill their existing contractual obligations and have looked to their contracts to see if they may rely on a “force majeure” clause due to COVID-19-related restrictions.

What is a Force Majeure Clause?

Force majeure” (FM) clauses discharge a contracting party from their contractual duties due to a supervening event, beyond the control of either party, that makes such performance impossible. The terms of a FM clause (i.e. the types of events constituting force majeure) vary per contract – however, they typically include the occurrence of something unexpected and beyond reasonable human foresight and skill.2[1] Such clauses often provide a specific list of events that fall within that scope, such as acts of God, acts of terrorism, war, labour disputes, strikes or natural disasters.

Can You Rely on a “Force Majeure” Clause for COVID-19 Disruptions?

It depends. There are four main factors to be considered when determining whether the FM clause of a contract is applicable to COVID-19, and the relying party bears the burden of proving these criteria are met.

1.       COVID-19 as a Force Majeure Event

First, you would need to demonstrate that the specific wording of the relevant clause is applicable – in other words, whether the COVID-19 pandemic is covered as a FM event by the contractual terms.

 COVID-19 is more likely to qualify when words such as “pandemic”, “epidemic”, “quarantine”, “illness”, or “outbreak” are included in the clause. If such wording is missing, the relying party would have to argue that COVID-19 is an event that falls within the language of the provision. Arguably it could be included within the scope of broader terms such as “Act of God”, “natural disaster” or “circumstances beyond a party’s reasonable control” but each matter is highly dependent on the context and specific wording of the clause.

2.       Sufficient Impact on Contractual Obligations

Secondly, you would need to show that the FM event has sufficiently impacted your ability to perform your contractual obligation(s), taking into account:

  (i.) The degree of impact on the party, and

(ii.) If the FM event and its effects were the definite cause of the party’s failure to perform its contractual obligations.

In the context of COVID-19, you would have to prove that the virus and its effects prevented (and rendered performance impossible), hindered or delayed the relying party’s performance and were unforeseeable and completely outside of the parties’ control.

The degree of impact of COVID-19 on the party must be so great that the commercial purpose of the contract is “frustrated”, and COVID-19 must have had an actual and direct impact on the relying party’s ability to perform its obligations. This is fact-specific and would depend on the contract and the obligation from which a party seeks to be excused.

3.       Mitigation Efforts

The third step would involve demonstrating that you have taken reasonable steps to avoid and mitigate the effects of COVID-19. Some contracts specify the level of mitigation efforts needed – however, courts will generally be reluctant to recognize COVID-19 as an FM event where the impacts experienced were reasonably avoidable.

The standard of a party’s duty to mitigate is generally limited to “commercial reasonableness” and could include developing quarantine protocols, exploring remote work capabilities, seeking guidance from health officials, etc.

4.       Notice and Evidence Requirements

The last step would involve the consideration of other additional contractual conditions, such as notice and evidence, and whether they have been met. FM clauses typically contain prescribed time periods for notice to be provided following the occurrence of the triggering FM event. A failure to provide this will void the party’s FM rights. Where there is no requirement to provide evidence or documentation, relying parties should still document the impacts of COVID-19 on their ability to meet their obligations, as well as their efforts to avoid and mitigate such impacts.

The enforceability of a force majeure clause as a result of COVID-19 is fact-dependent and contract-specific. If you are considering relying on such a clause, you should obtain legal advice to review the contractual documentation and circumstances of your situation prior to doing so.

With specialist civil litigation lawyers at Tailor Law, we can discuss your matter with you over a free consultation. Call us now at 905-366-0202 for more information or you can reach us through our website here.  

[1] Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co, [1976] 1 SCR 580 [Atlantic Paper Stock].

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