Understanding force majeure clauses. The importance of getting a force majeure clause right amidst the coronavirus outbreak.
Contracts which are silent on force majeure or have not expressly accounted for a pandemic within the force majeure clause, may face claims for breach of contract due to non-performance of contractual duties. The coronavirus outbreak has meant many contractual duties are unable to be fulfilled. It is therefore being asked whether non-performance of a contractual duty amounts to a breach.
Does non-performance of a contractual duty amount to a breach?
This is largely dependent on the extent and definition of the force majeure clause in the contract and whether the event of a pandemic falls within the ambit of the clause and is sufficiently defined. If a pandemic is covered by the force majeure clause, then the party may be excused from performing its contractual obligation.
What if a party is not covered by a force majeure clause and has been unable to perform contractual duties due to the COVID-19 outbreak?
There is growing concern for people who may be liable to pay damages for non-performance. Parties may be able to explore relief via alternative avenues such as common law mechanisms in the event their contracts are silent on force majeure clause or a pandemic is not sufficiently defined.
What is a force majeure clause?
A force majeure clause excuses a party’s non-performance under a contract in the event of extraordinary events, which prevent a party from fulfilling its contractual obligations.
More commonly force majeure clauses which excuse a party from fulfilling their contractual obligations may include events of natural disasters (hurricanes, floods and earthquakes), war and terrorism.