The COVID-19 Outbreak and the enforcement of a Force Majeure Clause
The effects of the recent Coronavirus outbreak have been intensifying for the last couple of weeks, particularly following the World Health Organisation’s declaration that the virus is now considered to be a global pandemic. Said effects are also expected to reach a higher peak in the near future.
These effects have to date included a plunge in demand and supply, various disputes and also contractual breakdowns. It also implicates greater risks of disruption and business continuity concerns. Furthermore, inability to perform certain obligations might arise due to a number of restrictions.
An issue which is of particular importance with regard the present epidemic is that of force majeure. A force majeure clause excuses a party to a contract to carry out his or her duties due to unforeseen circumstances. Whilst the Coronavirus is most likely not to be referenced in a contract, force majeure clauses typically include a list of events such as government orders, wars, national emergencies and sometimes also pandemics. Generally, such clauses are enforceable when the circumstances are unforeseeable, unavoidable and impossible to overcome.
The Coronavirus epidemic presents factors which are similar and likely to appertain to a force majeure case due to the fact that the circumstances might give rise to the inability to perform contractual obligations.
Various considerations should be taken into account when applying the force majeure clause which considerations include the nature of the event, duration and/or expected duration and the effects of the contract in question. The forecasted severity of the effects is to be also factored in. Historically, Maltese courts have always looked at the factor of “inevitability” when evaluating the plea of “force majeure”.
Accordingly, an attentive assessment of the conditions affecting such considerations and the relative countermeasures are to be conducted. Such assessment should include an analysis of the supply available, prospects of timely recovery, range of remedies realistically available, available accessible substitutions and the possibility of recovery. These assessments are vital for the negotiation stages, contingency planning and dispute resolution options. In such situations, parties should also consider tailor-made negotiations and also necessary termination.
Such assessment will also indicate the likely merits and prospects of the enforcement of a force majeure clause. As the epidemic spreads further, various jurisdictions will face different challenges and different scenarios. Nevertheless, the risk of force majeure enforcement is likely to grow.
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