The impact of Covid -19 is being felt by all businesses, everywhere. Supply chains are severely disrupted and the service industry is grinding to a halt. Newsroom asks contract law expert David Friar if force majeure clauses will excuse firms from their contractual obligations.
* Watch Mark Jennings’ interview with David Friar in the video player below*
Force Majeure is a French term equating to “Act of God”. Whether people are religious or not, it is generally accepted as an event that is beyond human control : An event or effect that cannot be reasonably anticipated or controlled, according to Black’s Law dictionary.
Force Majeure clauses are reasonably standard in legal contracts and are usually triggered by natural disasters like earthquakes or hurricanes.
The question many business owners want answered now is whether Covid-19 will trigger the force majeure clause if their contracts have one.
Bell Gully partner and contract law expert, David Friar says it depends on the wording of the clause.
“The coronavirus may be covered if the specified events include ‘disease’ or similar. In addition, the coronavirus could lead to travel or import/export restrictions that may qualify as ‘Acts of State’ or governmental restrictions.
“Some clauses go further than a list of specific events, and generally apply to all events that ‘could not have been reasonably prevented’ by the affected party. As a result, it is essential to closely review the relevant wording.”
Coronavirus and the doctrine of frustration
Friar says if a contract does not contain a force majeure clause, the common law doctrine of frustration may apply.
“It releases the parties from their contract where, by no fault of either party, an intervening event makes performance impossible or radically different than what the parties agreed.
“Examples of frustration include circumstances where a government directive makes performance illegal, the person providing the service is permanently indisposed or the purpose of the contract no longer exists (for example, where an event has been cancelled).
But Friar is urging caution if you decide to repudiate a contract and rely on a force majeure or frustration clause.
“If you get it wrong, the other party can sue you for damages including all their lost profits, so it is high risk if you get it wrong. What we are telling people is to make sure they carefully review these clauses and get legal advice before relying on them.”
Bell Gully is a foundation supporter of Newsroom.
