Contractual obligations and COVID-19: Force Majeure
COVID-19 has presented an array of setbacks, delays and derailments. Foreseeably, COVID-19 will continue to impact the economy with disruptions to businesses and supply chains, which means that individuals and businesses may be unable to fulfil their existing contractual obligations. However, does this mean that those parties affected by such disruptions can relieve their obligations by relying on a doctrine known as “force majeure”?
In order to rely on force majeure, the contract must include a force majeure clause, yet not all contracts are drafted with such provision. However, if the contract includes a force majeure clause, the question is if and when does it apply?
The force majeure clause is included in a contract to account for situations where a party cannot perform its obligations due to circumstances beyond its control. Where force majeure is relied on, it absolves the impacted party of liability for its failure to meet its contractual obligations as a result of an extenuating circumstance. Ultimately, the effect of the force majeure clause turns on the language of such provision. A well drafted force majeure clause will address: (1) how broad the definition is to include the triggering events; (2) what impact the triggering events have on the party relying on such clause; and (3) what effect the invocation of the clause will have on the parties.
Additionally, a force majeure clause may excuse performance entirely or only for the period of applicability of the disrupting event. Therefore, every force majeure clause should be considered and interpreted separately, as well as read in conjunction with the contract as a whole.
Where a contract does not provide a force majeure clause, the impacted party may rely on the common law doctrine of frustration instead. The impacted party must establish that the original purpose of the contract has been frustrated, and it would be unjust for such party to be bound to the contract under the existing circumstances. If frustration applies, the entire contract is terminated.
If you have questions regarding the applicability of the force majeure clause in your contract, we are happy to analyze the contract and discuss it with you.