Given that the effect of force majeure clause is often suspension of contractual obligations and sometimes even providing for the right to terminate, Courts will be alive to opportunistic parties attempting to use the crisis as a chance to 'get out' of their contractual obligations. With the virus spreading rapidly and 19 cases now reported in the UK, not only is the virus a major concern from a public health perspective, businesses are seeing disruptions which are only likely to increase in the coming weeks and months. WHO can also set global standards of practice during a PHEIC. “The Covid19 situation is an “Act of God,” but not all “Acts of God” excuse a party from its contractual obligations,” Kenneth Fields, a partner at Greenberg Glusker,” tells GlobeSt.com. cast uncertainty on the US economic outlook, shall be considered a force majeure event in accordance to PRC law, our reports on breaking developments in the COVID-19 outbreak, Insurance, Real Estate, and Commercial Contracts, Litigation, Arbitration and Investigations. Our site provides a full range of global and local information. Whether it be due to workers not being able to attend work, delays in shipment or cancellation of major events, the virus is starting to have huge commercial implications across many industries. Businesses and their business partners may also have questions about their legal obligations to employees in these unusual circumstances. First, it is noteworthy that a force majeure clause cannot be implied into a contract and so there will need to be an express term of the relevant contract. In India, Act of God or Force Majeure is not part of any legislation, however, this aspect of law is covered under the provisions of the Indian Contract Act, 1872 (Act) vis-à-vis Section 32 and Section 56 of the Act which states that when an obligation arising out of a contract is impossible to perform, then the contract becomes void, which is also referred to as frustration of contract. Is the basis for non-performance due to the naturally occurring component (the virus itself) or a government action component (. COVID-19 is posing novel issues to businesses globally, and it is not possible to know the full effects it will have on business and trade. In the law of contracts, an act of God may be interpreted as an implied defense under the rule of impossibility or impracticability. Coronavirus (officially named COVID-19) has been declared by the World Health Organization to have "pandemic potential". Business Interruption Insurance Test Cases - An Update, Departing from retained EU case law at the end of 2020, Business interruption test case, trends clauses and next steps, Get our latest updates delivered to your inbox. The legal definition of an act of God may vary based on governing law. This is a sensible time to review your policy and remind yourself of its parameters, and to look ahead, proactively evaluating the adequacy of your current insurance coverage to mitigate any potential losses resulting from future infectious disease outbreaks. © 2020 DLA Piper. Attorney advertising. Can a force majeure clause help a party to avoid contractual liability for losses? Whether it be due to workers not being able to attend work, delays in shipment or cancellation of major events, the virus is starting to have huge commercial implications across many industries. Many Chinese citizens are increasingly bored and working from home (or not working), as a result of quarantines and restrictions on travel. With major events such as exceptional storms and change in economic markets having not previously been classified as an 'act of God' by the Courts however, demonstrating an "act of God" is a high burden. Some factories in China are only now slowly getting back online, while others do not plan to restart production for several more weeks. "Lexology is a high quality service; the articles are very relevant and always useful", © Copyright 2006 - 2020 Law Business Research. Some contracts may even specify epidemics or pandemics as acts of God. Some act of God provisions differentiate between naturally occurring disasters and government actions. Before claiming protection under an act of God provision or taking your third-party vendor or supplier to court, consider the long-term implications of a dispute as well as any immediate consequences. With the virus spreading rapidly and 19 cases now reported in ... be left relying on a more generic sweep-up phrase often included in force majeure clauses such as the event being an "act of God". The relevant contractual provisions should therefore be considered urgently and with care. Finally, and perhaps most importantly, if the time does come for a party to rely on a force majeure clause there are often strict notice provisions in the contract. You may also be interested in our reports on breaking developments in the COVID-19 outbreak. It will be necessary in each circumstance to show therefore that the force majeure was the sole cause of the failure to perform the obligation as well as evidence that a party has attempted to mitigate its loss. All rights reserved. If so, special issues may arise.Please refer to this article for more details. Become your target audience’s go-to resource for today’s hottest topics. In a commercial contract context, acts of God provisions eliminate or limit liability for injuries or other losses resulting from such events, deeming them beyond the control of the parties to the contract. The wording in the contract may be clear as to what amounts to a force majeure and indeed a wide spreading virus such as COVID-19 may firmly fit into such a definition. These are non-binding measures that may address travel, trade, quarantine, screening, and treatment. We are here to help. At what point do these events allow a party to a contract to delay performance, not perform, renege on agreed provisions, and/or renegotiate the terms of a business agreement? The burden of proof is on the party attempting to rely on the clause and therefore if it is likely that a party may need to rely on a force majeure clause then all relevant evidence should be collated as the impact of the virus continues to unfold. DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world. Is your contract governed under US, Hong Kong, or PRC law? Companies may also have insurance policies that provide coverage for such issues as business interruption or other disease-related losses. Please contact customerservices@lexology.com. If there are other contributing factors to the prevention of contractual performance then a party is likely to face push back from the other side. Some act of God provisions differentiate between naturally occurring disasters and government actions. Therefore, whether the current outbreak would apply to your contract will largely depend on the language of the contract, governing law, and specific circumstances. Whilst the Chinese government has been issuing 'force majeure certificates' to Chinese companies (with it reported that over 3,000 were issued in February alone) it is important to note that whether there has been a force majeure will nonetheless depend on the circumstances of each case and the specific drafting of the clause. If not, parties may be left relying on a more generic sweep-up phrase often included in force majeure clauses such as the event being an "act of God". Finally, and perhaps most importantly, if the time does come for a party to rely on a force majeure clause there are often strict notice provisions in the contract. During a WHO designated PHEIC, the WHO can issue temporary recommendations. If there are other contributing factors to the prevention of contractual performance then a party is likely to face push back from the other side. The wording in the contract may be clear as to what amounts to a force majeure and indeed a wide spreading virus such as COVID-19 may firmly fit into such a definition. A closer look at a standard but often overlooked “act of God” or force majeure clause in contracts may provide some insight into options for mitigating commercial and operational risks during the ongoing health crisis. Questions? Lobsters in New Zealand are being freed. Where all the parties to a contract value the arrangement and expect to continue to work together, the best outcome may be to negotiate new terms that address delayed performance and future expectations. Even if you did sue your vendor or supplier for breach of contract, where else could you go? Partner, Dispute Resolution Coronavirus (officially named COVID-19) has been declared by the World Health Organization to have "pandemic potential". Contractual provisions may require that the party seeking to benefit from protection in an act of God event provide formal written notice as soon as that party becomes aware of the potential event. Hacking group donates potentially stolen money to charities, Investment Treaty Claims in Pandemic Times: Potential Claims and Defences, SIAC Award can be enforced despite procedural irregularities, The Road Ahead for Oil & Gas Contracts and Disputes, Coronavirus and contact tracing apps: Global privacy perspective, International Overview of Force Majeure Amid Covid-19, Contractual Force Majeure Clauses and the COVID-19 Global Pandemic, Contractual Performance In The Age Of Coronavirus: Force Majeure, Impossibility And Other Considerations, What You Need to Know about Force Majeure in Light of the Coronavirus. Can a force majeure clause help a party to avoid contractual liability for losses? For example, some act of God provisions may also trigger rights and remedies for the other party, such as the ability to terminate any exclusivity provisions or important master framework agreements. Does the contractual definition include specific designations such as PHEIC, pandemic, or epidemic? Proactive efforts to understand your rights, provide timely notices and disclosures, and seek practical solutions to business interruptions will best protect your business in the short term and for the future. Whether an event constitutes "force majeure" is a fact-specific issue and it is often difficult to predict how a Court will approach the interpretation of the clause. If you are on the receiving end of such a notice or anticipate that COVID-19 may pose an issue for your third-party vendors or suppliers in China, consider whether appropriate procedures and timely notification are being followed and that there is adequate documentation. DLA Piper is a global law firm operating through various separate and distinct legal entities. Tailor your perspective of our site by selecting your location and language below. For further information about these entities and DLA Piper's structure, please refer to the Legal Notices page of this website. The relevant contractual provisions should therefore be considered urgently and with care. Does your contract contain an international arbitration clause, involve an international contract for the sale of goods, and/or shipping and shipbuilding contracts? Companies should also consider other legal issues, including any required disclosures to customers, consumers, and/or regulators about the effects of the outbreak on their business. Power up your legal research with modern workflow tools, AI conceptual search and premium content sets that leverage Lexology's archive of 900,000+ articles contributed by the world's leading law firms.
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