By Osman Aboubakr and Faraz Siddiqui

Amidst the disruption caused by coronavirus, COVID-19, businesses are increasingly focused on Force Majeure (FM) clauses these days to determine their contractual obligations.

Here is an easy to follow breakdown of how your general counsel (GC) would go about interpreting an FM clause to determine your business’s rights and obligations during what the World Health Organization has labeled a “pandemic” .

Except with respect to payment obligations under this Agreement [1], no party (the “Affected Party”) shall be liable for, nor shall such party be considered in breach of this Agreement due to, any failure to perform its obligations under this Agreement as a result of a cause beyond its control [2], including but not limited to any act of God or a public enemy or terrorist, act of any military, civil or regulatory authority, change in any law or regulation, fire, flood, earthquake, storm or other like event, disruption or outage of communications, power or other utility, labor problem, unavailability of supplies, or any other cause, whether similar or dissimilar to any of the foregoing [3], which could not have been prevented by such party with reasonable care (each, a "Force Majeure Event"). Within 24 hours of the occurrence of a Force Majeure Event, the Affected party shall notify the other party (the “Non-Affected Party”) of the occurrence by sending either (i) an e-mail message, or (ii) a fax message, to the Non-Affected Party [4]. In addition, the Affected Party shall provide to the Non-Affected Party within seven (7) days of determining the cause of the Force Majeure Event a written explanation concerning the circumstances that caused the Force Majeure Event [5]. The time for performance required of the Affected Party shall be extended by the period of such delay provided the Affected Party is exercising diligent efforts to overcome the cause of such delay. In the event of equipment breakdown or failure beyond its control, the Affected Party shall, at no additional expense to the Non-Affected Party, take reasonable steps to minimize service interruptions and mitigate their effects but shall have no liability with respect thereto [6].

[1] Exclusions: The FM clause cannot be used to get out of payment obligations.

[2] A Cause Beyond Control: The FM clause can be used to excuse failure to perform or breaches of an agreement if this arises out of “a cause beyond control”. This is important … so important that most contracts go on to give examples of what this means. The FM event must be one that is/was not under your control and so cannot/could not be prevented or avoided. An event that makes it more expensive to perform a contract would not qualify.

[3] The Examples: the use of “including but not limited to” is important as it means that the list is not exhaustive. The longer the list, and the more diverse it is, the more likely your GC will be able to argue in favor of your FM event (even if it is not on the list). Government restrictions due to Covid-19 could be argued under “… act of any military, civil or regulatory authority, change in any law or regulation…”

[4] and [5] Notification and Information Requirements: These are very important and must be followed. Failure to do so could mean that in a legitimate FM case the FM provision would not be triggered. If the FM provision is not triggered, any failure to perform or breaches of contract by the party affected by the FM Event could be argued to be a breach of contract giving the non-affected party the right to terminate or claim for damages.

[6] Duty To Minimize Disruption: If there is a duty to minimize the effect of the FM event it must be followed, otherwise you would be in breach of contract.

Hope this helps…

Argentum Law is an international advisory firm built on leveraging technology and connectivity to provide legal services through virtual offices. With years of experience working remotely, our lawyers are available to provide counsel with minimal disruption during this time of crisis.