The ongoing global coronavirus COVID-19 outbreak is significantly impacting international business and cross-border commercial operations. Whereas the possible impact of coronavirus COVID-19 on the IT functions of a company active in Belgium might, at first sight, seems limited, the risk of such an impact is real, in particular when parts or all of a company's IT functions is outsourced to one or more IT service providers with off-shore delivery centers.
On 30 January 2020, the World Health Organization declared the coronavirus COVID-19 outbreak a "public health emergency of international concern". Today, no one can predict how long the outbreak will last or how far it will spread globally. Clearly, these events are unprecedented in modern times and could have profound business implications if not proactively addressed. A key question in this respect is at what point these events would allow an IT service provider to delay performance, not perform, renegotiate on agreed provisions or even terminate the affected IT outsourcing contracts? A closer look at a standard but often overlooked "force majeure" clause in your IT outsourcing contracts may provide some further insight.
Does the coronavirus qualify as a force majeure event?
In order to assess whether coronavirus COVID-19 could be seen as a force majeure event, a number of points are to be taken into consideration.
Under Belgian law, force majeure is traditionally defined as an exceptional, and to a certain extent unforeseeable event, which cannot be avoided through the use of caution and preventative measures and renders the performance of a party's obligations definitely or temporarily, totally or partially impossible.
Most IT outsourcing contracts however contain their own definition of force majeure. If the contractual definition would explicitly include epidemics, viruses or illness, the situation is rather clear. If the definition would be formulated exhaustively and would not contain such language, the IT service provider will most likely not be able to rely on force majeure to be relieved from performing its contractual obligations. On the other hand, in case of a non-exhaustive definition, the question may arise whether it is sufficient that this type of event is listed as force majeure in the contract or whether the event also needs to meet the requirements for force majeure under Belgian law. In order to avoid such discussions, it is recommended to specify this in your IT outsourcing contracts.
Furthermore, a number of related questions arise:
- Is the naturally occurring component (i.e. coronavirus COVID-19 itself) or a government action reacting to it (e.g. quarantines and/or limitations on transportation) the cause of the impossibility for a party to perform its obligations? In case the virus itself would be the force majeure event, it may be more difficult to pinpoint the exact triggering event (e.g. would it be the first contaminated person or rather the start of the pneumonia outbreak in a specific region?).
- Whether the cause of the impossibility to perform is the virus or a government action will also be relevant to determine whether said course constitutes a force majeure event. Whereas today the travel ban to and from Wuhan (or another impacted region) may be considered a force majeure event if the IT service provider has its delivery centers or a lot of commuting staff in such region, the assessment may be different in case of the illness of only a few employees out of many.
- Is the cause of the impossibility to perform foreseeable? While this today may most likely be concluded for (certain parts of) China, IT service providers with off-shore delivery centers in other countries (such as for example India or South Korea) might have a harder time to successfully claim that the (potential) outbreak of coronavirus COVID-19 in these countries was unforeseeable.
- Could the IT service provider reasonably prevent or circumvent the cause of the impossibility to perform ? This would be less likely if a government action, such as a travel ban, constitutes the force majeure event. However, if the virus itself would be the force majeure event, the actions taken by the IT service provider will need to be carefully assessed (e.g. has the IT service provider informed its employees about the WHO's coronavirus COVID-19 disease advice? Does the contract contain specific requirements as to where the contract needs to be performed and if not, can the services be performed from another delivery center? Is a business continuity and disaster recovery plan in place and properly executed?).
Contractual provisions may require that the party seeking to benefit from protection in case of a force majeure event provide formal written notice as soon as that party becomes aware of the potential event, or even impose time limitations within which a notification needs to be submitted. For IT service providers whose service delivery is impacted by coronavirus COVID-19, it is therefore important to carefully check the wording of the agreed force majeure clauses and to ensure that proper evidence is gathered showing that there is a direct causal link between the force majeure event and the IT service provider's inability to perform.
As a customer receiving a notice from your IT service provider or anticipating issues with your IT service provider, consider whether the contractual procedures and notifications are being followed and that there is adequate documentation. It is important to make sure that your IT service provider does not use coronavirus COVID-19 as an excuse to escape liability for a breach that would have occurred regardless of the virus.
In any event, before claiming protection under a force majeure clause or taking your IT service provider to court, consider the long-term implications of a dispute as well as any immediate consequences. For example, many IT outsourcing contracts trigger rights and remedies for the other party, such as the ability to request a step-in or to terminate the contract.
Given the widespread impact of coronavirus COVID-19, it is likely that not only your IT service provider but also several of its competitors are facing similar issues. Even if you, as a customer, would sue your IT service provider for breach of contract, where else could you go? Given the impact of the outbreak, it may be difficult to quickly find a replacement supplier. A careful contractual and strategic assessment is therefore appropriate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.