Force majeure is a common clause in most contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract.
To constitute a force majeure, it is likely that the language in the clause in question must explicitly capture an event like COVID-19 – for example, by using language like “pandemic”, “epidemic”, or “public health emergency.” Many contracts that were drafted post-SARS do contain such terminology, but the first step of any analysis is to review the language of your contract, agreement, policy or coverage.
Control: The issue becomes whether this event is one that is beyond the relying party’s control.
Foreseeability: This issue could arguably arise for clients who entered into contracts after it became reasonably likely that the pandemic would take root. Thus, the date on which the contract was effective or signed will be an important consideration.
Performance: There is usually a level of interference with an obligation that must exist before a force majeure clause is triggered.
Impact: Most importantly, COVID-19 must have an actual and direct impact on the relying party’s ability to perform their contractual obligation.
Mitigation: Once impacted, the relying party is still obligated to take steps to mitigate.
In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure.
A party may still have recourse to the doctrine of frustration of contract. Under the current common law, frustration occurs when an event supervenes (without the fault of either party, and for which the contract makes insufficient provision), which so significantly changes the nature of the parties’ rights or obligations from what they could reasonably have contemplated when executing the contract, that it would be unjust to hold them to its literal stipulations in the new circumstances. In such situations, both parties are discharged from further performance of their obligations under the contract.
It is best to use a corporate or commercial lawyer in these cases. Corporate and commercial lawyers are trained to review the precise language of a contract, agreement, policy or coverage to provide their opinion on whether Force Majeure can be relied on.