COVID-19 has wrought havoc on businesses and supply chains as organizations worldwide have slowed to a halt. With everyone staying indoors to stop the spread of the virus, many businesses have been left without customers to sell to and means to operate—or means to follow through on business agreements.
This worldwide crisis is widespread, unforeseen, catastrophic, and undeniably prevents many businesses from following through on contractual obligations—qualifications that, in many cases, qualify the current pandemic as a force majeure, or “superior force.”
With legal repercussions around the pandemic and how it applies to contracts still unfolding, many people have questions about force majeure clauses, what they entail, and how they apply to the coronavirus. Here are some of the specifics on force majeure clauses and how they relate to COVID-19.
Force Majeure Clauses
What exactly is a force majeure clause? It is a clause that removes liability for one or more parties in the case of natural and unavoidable catastrophes. Such catastrophes, sometimes referred to in legal documents as “acts of God,” might include natural disasters like floods or earthquakes, wars, or pandemics like the one we’re currently facing. To fall under force majeure, a catastrophe usually must be unforeseeable, unavoidable, and external to the parties involved in the contract.
Generally, this provision does not completely release parties from responsibility, but instead postpones deadlines or extends the period of time allotted for parties to fulfill obligations. The exact measures for carrying out this clause will depend on the specific contract and circumstances.
Past instances in which force majeure clauses have been used include when a civil war in Libya disrupted oil and gas industries in 2011, when the eruption of a volcanic glacier in Iceland grounded flights in 2010, and when the 9/11 terrorist attack closed businesses in Lower Manhattan.
How Force Majeure Applies to COVID-19
With the COVID-19 outbreak currently intensifying around the world and government-enforced lockdowns limiting businesses’ ability to operate, this clause has entered the spotlight as a possible recourse for floundering businesses. Due to the World Health Organization guidelines prescribing self-isolation if any of the symptoms of COVID are experienced, some employees may not be able to fulfill their roles if they are unable to complete them from home. And strict travel restrictions may prevent businesses from delivering goods and services. These circumstances could prevent companies from fulfilling contractual obligations and may apply under a force majeure clause.
However, it’s impossible to definitively state whether a given situation qualifies as a force majeure. Many contracts do not specifically include pandemics, so they could be read as not including the current COVID-19 crisis. Sometimes, instead of just improbability or extreme difficulty in fulfilling the contract, impossibility is required in a force majeure clause—legal impossibility included. So if there are legal mandates in your area to stay indoors and for non-essential businesses to stop operations, you could have a strong case in favor of accepting the clause, but this depends on your location. And the list of factors relating to each specific case stretches on.
Due to the sudden and changing of this virus, many individual cases claiming force majeure are still arising and have yet to be decided, and any decision will heavily depend on the specific nature of the contract that you sign and your specific situation.
What Businesses Can Do
Businesses are facing some of the largest financial losses in years, due to no fault of their own. If you’re unable to meet contractual obligations directly due to COVID-19, your situation may fall under force majeure.
The best method of deciding whether a force majeure clause covers your circumstances is to hire a contract dispute attorney who can help you navigate your specific contract’s wording and stipulations, and your own situation.
COVID-19 is still new, and it is also changing worldwide conditions daily. So when it comes to the law and legally binding contracts, it can be difficult to know how COVID-caused issues will be resolved at this time. Working with an experienced attorney will give you the highest chance of successfully navigating your business’s difficulties, whether they fall under force majeure or require a different solution in order to be addressed and resolved.