We’re midway through the COVID-19 pandemic, and it is very likely that at some point during the last year you found yourself frantically pouring over a contract and scrambling to get legal advice because you were unable to perform some contractual obligation. Were you going to be liable for breach of contract? Could you be taken to court? Even if it wasn’t your fault? After all, the reason you couldn’t fulfil your duties (e.g. a national lockdown) was beyond your control. To avoid being in this precarious position again, this is how you can prepare your contracts for unforeseeable events, whether it is the next pandemic, or less likely, a zombie apocalypse.
What is Force majeure?
While it is impossible to know what the next pandemic will be, it is possible to plan for the event of something unexpected happening outside either party’s control which would make it impossible for the parties to fulfil their contractual obligations. This is the crux of the force majeure (literally French for “superior force”). It essentially suspends the contract for the duration of the force majeure event with the intention of resurrecting the contract once the event is over. If the event lasts for longer than a specified period of time, some contracts give a non-affected party the right to work with someone else for the time being or the right to terminate the contract altogether.
How do you apply Force majeure?
How do these contracts work? Well, a party who seeks to rely on a force majeure clause will notify the other party as soon as they realise that some inescapable event or occurrence is going to have an impact on their ability to perform a contract. The classic requirement is to show that performance of the contract has been hindered, prevented, or delayed. This may also include showing that steps have been taken to lessen the impact of the event. When it is shown that it is legally or physically impossible to carry out the contract, the party is then freed from their contractual obligations.
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Is Force majeure implied in every contract?
The force majeure clause may seem like a godsend but its application is not very straightforward, partly because it they will not be implied into contracts which are silent about it. If you want the protection they offer, your contract must explicitly mention the possibility of force majeure events. Moreover, in countries like the US or the UK which do not have a legal definition of the concept, a contract must be specific about what will amount to such an event i.e. it needs to make references to things like “diseases”, “pandemics”, or “actions of the government” if it wants to anticipate the next pandemic. It is not enough to simply say “in the event of a force majeure, the parties will be relieved…”, because the interpretation of force majeure clauses is unique to each specific case; every contract must be individually analysed to see whether or not a particular event is force majeure.
Legislate aims to ensure that parties negotiate contracts which are vigilant and versatile. This includes fair termination opportunities, especially in the event of an unprecedented state of affairs. If you would like to start legislating, book a demo, join our waiting list or receive an invitation from an existing member.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.