Thanks to coronavirus, parts of China are in lockdown, companies are closed and movement is limited. One consequence is that many businesses who buy and sell goods in the Chinese market can't perform their contractual obligations and are looking to rely on force majeure clauses to protect them.
What is force majeure?
Force majeure is often a legal stipulation in contracts. It is an exceptional, external and unanticipated event or situation which prevents a party from performing its contractual obligations. Commonly, terrorist attacks, floods, earthquakes and acts of war are defined as force majeure events. A force majeure clause may allow a party to avoid liability for non-performance, to revise elements of a contract (e.g. to adjust delivery dates) or even to terminate.
How does this relate to the coronavirus?
The coronavirus is impacting businesses and supply chains across the world, so many are considering invoking force majeure clauses to relieve them of their contractual performance obligations. A Chinese government department is issuing certificates, certifying coronavirus as a force majeure event, so if your contract is governed under Chinese law, it's likely the courts will accept these certificates.
Otherwise, your rights will depend on how force majeure is defined in your contract. If there is no reference to 'epidemics', 'health emergencies', or similar language, then it may be challenging to invoke the clause. However, often 'acts of government' are contemplated as a force majeure event, and there are good arguments that the governmental response to coronavirus will qualify.
How do you invoke a force majeure clause?
If you intend to rely on a force majeure clause, or a company you are dealing with is trying to do so, you should:
- review your contracts for force majeure clauses – how is force majeure defined? What failure of performance does it cover (e.g. whole or partial)? Does the clause require any specific actions to be taken?;
- (if you are the party seeking to rely on the clause) inform the other party (in writing) that you are affected by a force majeure event;
- gather evidence of the force majeure event; and
- see if a sensible accommodation can be reached (such as mutual termination or adjustment of due dates).
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