Assessment of whether COVID-19 constitutes a force majeure event
Force majeure is often included as a clause in commercial contracts to relieve one or more parties of liability for damages in the event of an extraordinary event. Thus, an outside and unpredictable event that makes it impossible for a contracting party to properly fulfill its contractual obligations (e.g. delivery of a product, delivery time, etc.) and which the affected party could not foresee, prevent of overcome.
Does COVID-19 constitute a force majeure event?
Whether COVID-19 constitutes a force majeure event will always depend on a specific assessment of the wording of the force majeure clause in the contract, and the law of the country to which the contract is subject.
If COVID-19 is to be considered force majeure, it must be stated that force majeure also includes health crises, epidemics or similar outbreaks, quarantines/isolations imposed by public authorities, etc. If such circumstances are included in the contract, you are in a fortunate position, as the WHO has declared the outbreak of COVID-19 a public health crisis of international importance. If the circumstances are not included in the contract as a force majeure-triggering circumstance, force majeure cannot be claimed, and it will ultimately be for the courts to decide whether COVID-19 constitutes a force majeure event in the specific contractual relationship. It is the party that claims force majeure which has the burden of proof that COVID-19 has had an impact on the contractual relationship and constitutes a force majeure triggering event.
What if the contract does not contain a force majeure clause?
If the contract does not contain a force majeure clause, it should be examined which country’s rules (law of choice) the contract is subject to. In some countries there is a general principle of force majeure. For contracts subject to Danish law, force majeure applies as a general legal principle. However, this is not the case in other jurisdictions, which is why it is essential that the contract considers force majeure as a reason for discharge. The choice of law can therefore play a decisive role in whether COVID-19 is considered a force majeure event.
Remember the notification obligation
Not all obligations are annulled if a contracting party wishes to claim force majeure. Under Danish law the discharge of the party who is unable to fulfill the contract and claims force majeure is conditional on the party loyally notifying the other party, and the non-fulfilling party being obliged to limit the damage that may occur. Failure to comply with the obligation to notify may result in liability for damages and the possibility of claiming force majeure may be lost. Similar provisions will generally apply in international contracts.
At present it is important that companies act proactively. Companies should therefore review already concluded contracts that COVID-19 outbreaks may affect and be aware of the wording and coverage of the force majeure clause. If the contract does not contain a force majeure clause, the contract must be examined with the aim of determining the choice of law and possibly the jurisdiction as well.
Additionally, companies should conduct a general review of their standard contracts and consider how future health crises, epidemics or similar outbreaks, quarantines/isolations imposed by public authorities, etc. can be considered in the overall contract management. For this purpose, companies should consider whether there is a need to amend the force majeure clause, or otherwise to specifically regulate the consequences of such a circumstance in the case of gross violation of the standard contracts . Going forward, it will probably be harder to claim that COVID-19 is a force majeure event, as the ‘unpredictable’ requirement will no longer be met as a result of the ongoing outbreak.