Your Business Contracts and “Force Majeure”

Your Business Contracts and “Force Majeure”

Coronavirus has been extensively covered in the news media. What has arguably received less attention is what happens when an unforeseeable event such as this prevents a party from fulfilling its contract obligations. Such situations have the potential to disrupt businesses. With this in mind, here are 5 things to know about how your business could be affected.

  1. “Force majeure” is a legal concept which covers situations where unforeseeable circumstances prevent someone from fulfilling a contract. Many contracts will contain a “force majeure clause”.
  2. If your contract does have a force majeure clause then your rights will be determined by the words of that clause. This might include situations where a party is prevented from performing an obligation completely or partially as a result of the event.
  3. In some cases, a force majeure clause might provide for termination of the contract if the force majeure event continues for a certain period of time.
  4. Where a contract has no force majeure clause a party to the contract might find relief in the legal concept of frustration. Frustration ends contracts where an unforeseen, post contract event, happens through no fault of the parties and either makes contract obligations impossible or radically changes contract obligations.
  5. It is important to know that frustration is not easy to establish and is very narrow in how it can be applied. Examples might include where the law has changed making the contract illegal or where the asset that is the subject of the contract has been destroyed.

Above all, businesses should revisit any relevant business contracts and understand their rights and obligations as they relate to unforeseen events such as the coronavirus pandemic.