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

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

The COVID-19 global pandemic has caused social and economic disruption. 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 4 factors to consider when determining if a FM clause applies to COVID-19.

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 “epidemic”, “quarantine”, “illness”, or “outbreak” are included in the clause. Arguably it could be included within the scope of broader terms like “Act of God” or “natural disaster”.

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 order to get a COVID-19 refund, you would have to prove that the virus prevented your party from performing as expected.

COVID-19 may have an impact on some contracts and make them invalid.

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.

A party’s duty to mitigate generally includes taking commercially reasonable measures.

4. Notice and Evidence Requirements

The last step in a contract negotiation process is to consider other contractual conditions. 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. A party should document the impacts of COVID-19 on their ability to meet their obligations.

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 a contractual clause, you should obtain legal advice.

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.  

 

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