Does the Coronavirus outbreak constitute ‘Force Majeure’?
The recent outbreak of the Coronavirus has had considerable impact on the public life and business operations in and with China. As the outbreak does not show any sign of abating, companies which buy and sell goods in the Chinese market are considering using the legal defence of ‘force majeure’.
What is Force Majeure?
A force majeure clause typically excuses one or both parties from performance of the contract in some way following the occurrence of certain events. The underlying event must be unforeseeable and not the result of actions undertaken by the party invoking force majeure. The principle basically provides for that on the occurrence of certain events which are outside a party’s control, that party is excused from, or entitled to suspend performance of all or part of its obligations. Declaring force majeure may allow a party to a contract to avoid liability for non-performance.
Some examples of ‘force majeure’ events, are: acts of God, flood, drought, earthquake or other natural disasters, epidemic or pandemic, terrorist attack, civil war, riots, war, armed conflict; any law or any action taken by a government or public authority, etc.
Burden of Proof
The burden of proof is on the party seeking to rely on the force majeure clause, who must prove that non performance was due to occurrence of the force majeure event. Whether a force majeure clause will be triggered will depend on the interpretation of the specific clause in the contract. It has been established through case laws that, if a force majeure clause provides that the relevant triggering event must “prevent” performance, the relevant party must demonstrate that performance is legally or physically impossible, not just difficult or unprofitable.
Can Coronavirus outbreaks be considered a ‘Force Majeure’ event?
There have been several debates as to the legality of claiming coronavirus outbreak as a force majeure event and the general opinion is if the company invoking force majeure on basis of coronavirus should be able to prove that due to the outbreak it has become effectively impossible for them to perform their contractual duties. However, coronavirus cannot be treated as ‘carte blanche’ to invoke force majeure.
Cross-border deals typically include clauses that allow for non-performance during force majeure events, however, force majeure clauses mainly provide relief for unforeseen ‘acts of government’. The Chinese government has ordered lockdowns and closed factories in certain parts of China in the wake of coronavirus, therefore, ‘the act of Government’ could be invoked by some companies to get out of contractual obligations.
In conclusion, it can be said that although Coronavirus outbreak and respective government’s decisions to close businesses, extend public holidays, may constitute force majeure, each individual contract and their ‘force majeure’ clause should be carefully interpreted and applied accordingly.
If you have any further questions about the affect of Coronavirus on your business’ operations or obligations please get in touch with our Commercial Law team.
