Starting first from the Wuhan region, the corona virus epidemic has now touched almost every corner of the world. The consequences in the business and finance sector are dramatic and are calling for urgent solutions. The legal implications which emerged from the forced lockdowns are becoming more obvious day by day with the arising cases varying between employment relationships, insurance coverage of epidemic-related damages, consequences in the field of travel law, and supply and production-related relationships.
In this context lawyers are trying to find solutions by revoking terms such as: “Acts of God” and “Force Majeure”. In order to properly understand the application of these terms in every day contractual relationships, we should first analyze their meaning. “Force Majeure” and “Acts of God” clauses or provisions, are repeated in contracts and agreements. These clauses aim to resolve emerging disputes, when the reason behind the incapability of a contractual party to fulfill its obligations is based on events that couldn’t be predicted and are beyond its control.
Since international law does not precisely specifies the aforementioned terms, the specification remains a matter of ad hoc examination based on core principles. Typically, the contractual clauses include a brief explanation of the terms in order to facilitate their application in case of emergency. The clauses provide for an abstract definition of the terms which are illustrated by a number of non-exhaustive examples. The most frequent examples can include (but are not limited to): “Acts of God”, natural disasters such as earthquakes, fires, floods, storms and in general abnormal weather conditions. Force majeure can also include circumstances that could not be predicted by an individual such as strikes, work stoppages, accidents, civil or military disturbances, nuclear catastrophes, as well as events like terrorist attacks and armed conflicts and finally there should be mentioned lockdowns. With the consequences of climate change becoming harsher year by year, and with the emerging lethal natural disasters due to climate change becoming part of the modern world, it is easy for one to understand the importance of the existence of Force Majeure clauses. Since global scientific community rings the bells on the emergence of epidemics as a consequence of climate change and with the COVID -19 epidemic changing the way we interact in the finance and daily life, the Force Majeure and Acts of God clauses are now in the forefront of the weapons of legal protection for natural and legal persons.
In the absence of relevant contractual clauses the general statutory regulations of the governing law would apply to exonerate the non-performing party from liability.
The “force majeure” effect
Invocation of the clause can mainly lead to (at least) temporary suspension of the contracting obligations for the interested party. Not so frequently “Force Majeure” clauses can terminate the obligations of the party Vis – a- Vis the other party. The recipient of the request to invoke to force majeure clause shall limit its own damages providing every effort possible to do so.
The question on whether the new corona virus could constitute Force Majeure has become a trend in the legal community. The answer can only be given in an ad hoc basis through the analysis and the examination of the specific clauses included in a contract. National laws or the jurisdiction which applies in the contract can be of material influence and could lead to differentiated interpretation results.
China, resolved the issue by implementing the possibility to obtain, upon application a “Force Majeure Certificate” from the “China Council for the Promotion of International Trade” which can be used before courts as a proof of evidence for contracting partners. The certificate is really useful for companies with activities in China. In any case a thorough legal assessment of each case is required in order to determine the most suitable legal options economically wise precisely.
As key points that could lead to legitimate invocation of Force Majeure the following should be mentioned:
Coverage could be provided if the relevant contractual clause includes terms such as “epidemic”, “disease”, or “pandemic”. Even if the wording does not provide with such terms, coverage can be achieved by terms like Acts of God or “events beyond the reasonable control of the parties”. Force Majeure could also be triggered by the actions taken by government in order to prevent the pandemic’s outbreak. The subsumption of the events to the latter of the clause can be a matter of interpretation that needs to be resolved by courts.
The party shall prove that the event that caused the contractual breach was irresistible both in its occurrence (unavoidable) and in its effects (insurmountable), making the fulfillment of the obligations completely impossible. Even if COVID -19 as such could not constitute an event of force majeure, the reflecting implications could be considered as of exceptional (unforeseeable) and imperative (irresistible) nature.
Contracts that entered into force after the outbreak could find great difficulty invoking Force Majeure since the unforeseeable character of the events cannot be easily justified.
The interested party has to prove that there exists and actual and causal link between the events and the incapability to fulfill the contractual obligations. In the case of COVID-19 the impact on the party’s performance must be linked to events that were caused by the pandemic or by the governmental actions and delayed, hindered or outright the performance of the contract without the party having the capability to foresee or prevent the delay. Casual relevance is of great importance in this case since force majeure can only be justified if the event had an immediate impact on the performance of the contractual obligations.
The notice requirements mentioned in the contracts must be strictly followed in any case.
Invoking “Force Μajeure” should be the last resort in order for the parties to protect their business plans and support the already damaged economy. It is important that the parties make every efforts to mitigate damages. Lawyers can help with finding solutions that are legal and beneficial at the same time, respecting their client rights and interests.
The parties should take advises during every minute of the process from their legal counsels in order to assure that they are staying compliant with the regulations and national or international laws. This could help parties resolve the ongoing disputes and at the same time be prepared for the future changes both in the market and in the legislation.
We can easily say that Force Majeure is a solution for most businesses and companies but it is definitely not the easy one. Every action in that direction should be carefully considered and should be done taken only after exhausted analysis of the legal and financial requirements on the one hand and on the possible implications on the other.