COVID-19: Force Majeure And Frustration Of Contracts

• Published date: 26 October 2020
• Subject Matter: Corporate/Commercial Law, Coronavirus (COVID-19), Contracts and Commercial Law, Litigation, Contracts and Force Majeure
• Law Firm: Lennox Paton
• Author: Mr Dwight Glinton

The COVID-19 pandemic has disrupted commercial activity on a global scale, challenging contracting parties' ability to fulfil their legal obligations. Force majeure clauses and frustration principles may provide some relief to those which may otherwise incur liability because of non-performance.

What is a force majeure clause?

A force majeure clause enables the parties to a contract to suspend or terminate their obligations where the occurrence of exceptional events or circumstances make the performance of the contract impossible or radically different from that which was undertaken by the contract.

There is no presumption of a force majeure event and parties that wish to include a force majeure clause in a contract should specifically define the kinds of supervening occurrences that would constitute a 'force majeure' or 'superior force'. Parties could tailor the clause to include events that may be unique to their circumstances. Occurrences generally accepted as a force majeure include: riot, war, rebellion, government restrictions, earthquakes, floods, fires, strikes and civil unrest.

Unforeseen events that could disrupt a contract are myriad so the courts may have to interpret a force majeure clause to determine whether the particular occurrence is covered. Judges will construe a force majeure clause with close attention to the words in the clause and with regard to the general terms of the contract. The effect of the clause may vary with each instrument as certain events in a force majeure clause may not always be beyond a party's sphere of control.

Force majeure clauses sometimes include a catch all phrase such as "... or any other cause beyond the parties' control". While in some cases the courts have allowed parties to use this phrase for events not stated or unrelated to those in the force majeure clause¹, in other cases they have rejected certain occurrences even where there was a catch all phrase².

Where a force majeure clause covers a particular event, a party relying upon the clause may not be excused from the contact merely because the performance of the contractual obligation is more difficult or less profitable³. A defaulting party who wishes to rely upon a force majeure clause will have the burden of proving that the serious event has made it impossible to perform or radically changed his ability to meet his contractual obligation.

Is COVID-19 a force majeure?

Whether the COVID-19 pandemic constitutes a force majeure will depend on a...