How effective is your Force Majeure clause?
COVID-19 virus has had a devastating impact on all aspects of our lives.
A quick glance at the news shows the disruption to supply chains and the impact this is having on the availability of certain products. This is resulting in some companies being unable to fulfil their contractual obligations.
Review your commercial contracts
If the Coronavirus is causing your business difficulty in fulfilling customer orders, or your business has suffered delays or cancellations to orders, now could be the best time for the contracts governing those contractual arrangements to be reviewed.
Most commercial contracts contain a provision known as a ‘Force Majeure’ clause. The clause attempts to address unforeseeable events outside of the control of the parties involved. It also documents the outcome should one party become unable to fulfil their contractual obligations and their legal liability.
Force Majeure clauses often contain examples of these unforeseeable events and can include, by way of example, floods, terrorism, war and pandemics.
Can I rely on my Force Majeure clause?
Whether your Force Majeure (FM) clause can be relied upon to reimburse you for lost income will boil down to the precise wording in the contract. As a pre-cursor, in almost all circumstances performance of the contract in question must have been (or is likely to be) prevented, hindered or delayed.
It is unlikely that a business can rely on a Force Majeure clause simply because, the costs of it sourcing and supplying its goods has risen as a result of the pandemic.
My Force Majeure clause includes ‘acts of God’
Depending on the precise drafting of the Force Majeure clause in question, the clause may make reference to ‘acts of God’. An ‘act of God’ could be defined as an extraordinary occurrence, which could not have been foreseen and that could not have been guarded against – in other words, an accident.
It is exceptionally rare for the courts to be asked to consider whether ‘acts of god’ can be relied upon, particularly in regard to commercial contracts. However, we have all heard from the Government that we live in ‘unprecedented times’ as a result of the Coronavirus pandemic and indeed the law reflects this. Given the current climate, it may not be long before the courts are asked to consider this point again.
What other points should I consider?
Again, depending on the precise wording, there may be an obligation on one or both of the parties to the contract to limit their losses suffered as a result of the failure of performance of contractual obligations, insofar as possible.
Finally, it is universally recognised that these are extremely difficult times. If you believe there is likely to be an issue with your business’ supply chain or if a supplier has notified you that orders you have placed are likely to be delayed or cancelled, it is always worth considering having a commercial discussion with the other party to rework the existing arrangement. If you do come to an alternative agreement, this should be documented.
How can Terry Jones help?
Terry Jones can review your corporate contracts and advise on the effectiveness of your Force Majeure provisions. Contact us on 01743 285 888 or email email@example.com today.< < back to latest news