How Does Force Majeure Affect a Contract

If the force majeure clause relates to pandemics and/or epidemics, it will almost certainly be applicable, as the World Health Organization declared COVID-19 a pandemic on March 11, 2020. However, the situation becomes more uncertain when, for example, the clause may refer to “force majeure” without further definition. The International Chamber of Commerce has sought to clarify the meaning of force majeure (although it is not included in the organization`s Incoterms) by applying a standard of “practical impossibility”, meaning that it would be unreasonable, if not impossible, unreasonably burdensome and costly to perform the terms of the contract. The event that leads to this situation must be external, unpredictable and inevitable for both parties. However, it can be very difficult to prove these conditions, and most force majeure defenses fail in international courts. There is no doubt that case law on the interaction between the COVID-19 pandemic and force majeure will continue to grow as pandemic-related cases progress through litigation, and we look forward to providing further comment. In the absence of a force majeure clause, the parties may consider invoking the common law doctrine of impediment. The impediment fulfils a contract when an event occurs which makes its performance physically or economically impossible, or transforms the obligation of performance into an obligation fundamentally different from that envisaged at the time of the conclusion of the contract. 12. What should I do if I receive a force majeure notification? The auction was postponed due to COVID, and the auction house invoked the force majeure clause and terminated the contract – despite two months of waiting. The timing gave the impression that the auction house was waiting to see what the market for the painting would look like before unplugging the plug, and the owner sued, arguing that the auction house could and should auction the painting at one of its upcoming online auctions. She lost out on a motion to dismiss because the force majeure clause clearly protected the auction house.

Due to COVID-19 and/or lockdown measures, parties that have already signed a binding purchase agreement but have not yet completed the transaction may not be able to provide completion services – such as obtaining regulatory approvals and third party consents – or comply with restrictive agreements in the period between signing and closing – such as a commitment that the target company will continue in the normal course of business. continues to work (i.e., as was the case on a daily basis in the past). Buyers and sellers of such contracts should closely examine the terms of their contract, taking into account in particular: Overall, the Court found that the pandemic was characterized as a force majeure event in this contract. For more information on force majeure and COVID-19, please see our article. A standard force majeure clause may look like this (although the differences between them are significant and can have significant effects, as discussed here): it is strictly enforced by English courts and there is a very high threshold to prove that a contract has been frustrated. The facts giving rise to the event in question must be taken into account in addition to the obligations of the parties arising from the contract in question. A contract is not frustrated simply because it has become more difficult or more expensive, or because performance is delayed. Second, COVID-19 must have affected the performance of the contract in the manner specified in the force majeure clause. Force majeure clauses differ in terms of the trigger required to invoke the clause, but are likely to require that the party who wishes to rely on it be “prevented” from performing the contract. 10. Will the consequences of COVID-19 be force majeure? The triggering of the force majeure clause depends solely on the terms used by the parties in the contract. For this reason, many contracts contain force majeure clauses detailing events that would constitute a force majeure event.

These lists may be exclusive or non-exclusive. Non-exclusive lists (which are usually the most common) leave the possibility that other unlisted events may be classified as force majeure. When assessing the applicability of a force majeure clause in a particular situation, the court shall carry out a detailed examination of the exact contractual language used by the parties. A typical force majeure clause contains a list of events (which may be exhaustive or non-exhaustive) and describes how an event must affect the performance of the contract for the clause to be triggered.