Is your Force Majeure clause effective?

Whilst just a few months ago a global pandemic seemed totally implausible, we have seen the devastating impact the COVID-19 virus has had to all aspects of our lives.

The news reports show that supply chains have already been disrupted, certain products are harder to source and some companies are no longer able to  fulfil their contractual obligations.

Reviewing corporate contracts

If your business is struggling to fulfil customer orders or has suffered delays or cancellations to orders from suppliers, now might be the best time for the corporate contracts governing those arrangements to be reviewed and updated.

Many commercial contracts contain a provision known as a ‘Force Majeure’ clause, which attempts to address unforeseeable events outside of the control of the parties. It also documents what should happen if one party is no longer able to uphold their part of the contract, and their legal liability.

Force Majeure clauses often contain examples of these unforeseeable events and can include, by way of example, floods, terrorism, war and pandemics.

Can I rely on my Force Majeure clause?

Whether a Force Majeure (FM) clause can be relied upon in the current circumstances will be down to the exact wording in the contract. It will be crucial for the breadth of the FM clause to be carefully considered in each instance.

A note of caution – it is unlikely that a business can rely on a Force Majeure clause simply because, for example, the costs of it sourcing and supplying its goods has risen  as a result of the pandemic.

What is ‘acts of God’?

Depending on the precise drafting of the Force Majeure clause in question, the clause may make reference to ‘acts of God’. An ‘act of God’ may be defined as an extraordinary occurrence, which could not have been foreseen and which could not have been guarded against – in other words, an accident.

We have all heard the term ‘unprecedented times’ used to describe the current situation. The courts are rarely asked to consider whether FM clauses containing ‘acts of God’ can be relied on. Given the current climate, it may not be long before the courts are asked to consider this point again.

What other points should I consider?

Again, depending on the precise wording, there may be an obligation on one or both of the parties in the contract to limit their losses as a result of the failure of performance of contractual obligations.

If you believe that there is likely to be an issue with your business’ supply chain or a supplier has notified you that orders are likely to be delayed or cancelled, it is always worth considering a commercial discussion with the other party to rework the existing arrangement and coming to a compromise or an alternative agreement.

How can Donnelly & Elliott help?

As a special offer, we will carry out an initial  assessment to check the effectiveness of your Force Majeure provisions for a fixed price of £250 plus VAT per contract. Contact us on 02395 50 55 00 or email today.