Due to Covid-19, legal departments are assessing how force majeure and hardship clauses apply to commercial relationships around the world.
Legal teams are contemplating the option of applying the principles of force majeure to assess suspension or termination of their organization’s contracts. Key considerations for legal positions on force majeure across the world and how they affect parties who are unable, or may be unable, to perform their contractual obligations due to COVID-19 include:
1. Does this health crisis constitute a force majeure event?
Following the WHO classification, parties should review the key provisions of relevant contracts to determine whether the organization’s standard force majeure clause contemplates a pandemic event as constituting force majeure.
2. What about relying on the force majeure doctrine in law? Does the position differ in civil law or common law jurisdictions?
Legal systems utilizing civil law are typically found in continental Europe, South America and parts of Africa and Japan. EY research suggests that it may be possible to rely on the force majeure doctrine in civil law countries.
For common law jurisdictions, there is no single definition of force majeure. The application of the doctrine is decided on a case-by-case basis.
3. Will legislation or local regulatory activity confirm a force majeure event?
As stated above, the legal position on force majeure varies in law, whether in a civil or common law country. In civil law countries, it is possible that government legislation could confirm that a pandemic will be treated as a force majeure event. While not automatically confirming that all contracts would then be deemed terminated and/or suspended, the presumption would favor the affected party.
4. What are the next steps?
Review your existing contract estate.
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