COVID-19 and Force Majeure Declarations
Amidst the current COVID-19 crisis, many businesses are wondering about force majeure clauses and whether they are applicable in the current circumstances. The short answer is that each situation is different and the applicability of a force majeure clause is dependent on the specific circumstances. Even so, now is a good time for all businesses to better understand force majeure clauses and the impact they could have on contractual relationships in the coming months.
What is Force Majeure?
Force majeure literally means “superior force,” and it’s a contractual clause that relieves both parties of contractual obligations when extraordinary events occur that are out of both parties’ control. These contractual clauses are particularly common in supply agreements, which include a long list of circumstances that are covered for this provision to apply. For example, some common events include natural disasters, acts of God or government authorities, war, terrorism, civil disorder, medical epidemics or outbreaks, fire, and labor strikes or disruptions.
Can Force Majeure Be Invoked Based on COVID-19?
For businesses wondering whether they can make a force majeure declaration, the first step is to look at the relevant contract, ensuring that it has such a clause. The next step is to look at the specific language of the clause to determine whether it’s applicable. More specifically, is the language broad enough to cover this situation and does it cover all parties? If it does, it’s important to look at notice requirements and any other provisions that impact whether the force majeure provision can be invoked.
If your business is considering making a force majeure declaration or is concerned about other businesses making force majeure declarations impacting contractual relationships, it’s a good idea to first read all relevant contractual language and then consult with an attorney to better understand the next steps and potential impacts.
As the COVID-19 crisis continues to grow, more companies around the world are making or considering force majeure declarations. This can have a number of impacts on the global economy, including disruptions to long-standing contractual relationships, an increase in litigation costs, increased uncertainty in supply chain agreements, and increased disruptions to supply chains.
Force majeure declarations can offer businesses important protections during this period, but they also add uncertainty to an already volatile time. As a result, it’s important for businesses to understand all relevant force majeure clauses while being proactive about determining when they might or should be applied in the coming months.
Our team of experts can help businesses navigate the many logistical challenges that have come with this period. For questions about force majeure declarations or other disruptions caused by COVID-19, contact us today.