Force majeure claues in contracts in light of the coronavirus outbreak

How could the Corona virus outbreak affect you or your counterparty’s obligations under a particular contract? Does the effect of the virus constitute force majeure? Cirio has issued a report describing the concept of force majeure under Swedish law and a checklist to use when assessing the situation in the context of a contractual relationship.

At a glance

In addition to the impacts on global human health which naturally lie at the core of this matter, the novel coronavirus outbreak has proven to have a negative impact on international business and trade, not only to trade with and inside China, but also in domestic, European B2B relationships. Disease prevention measures implemented by states (most notably the Chinese government) and private corporations raise questions whether the outbreak and subsequent spread of the coronavirus could be considered as an event of force majeure by contract or by operation of law. This report presents a checklist based on Swedish law guiding both potential senders and recipients of force majeure claims. A summary of this checklist is provided below:

Q1. Does the contract include a force majeure (FM) clause?

  • If yes, the full set of questions 2-6 below will be relevant.
  • If no, only question 2 below will be relevant.
  • Are there other relevant provisions?
  • Note! The contract should be assessed as a whole.

Q2. What is the applicable law under the contract and what doctrine of force majeure (if any) applies under such jurisdiction?

  • The governing law of the contract will determine if force majeure can be invoked as a general principle of law.
  • Most common law jurisdictions do not recognise force majeure as a general principle of law in B2B relationships, whereas most civil law jurisdictions do.
  • Under Swedish law, there is a general principle that a party is not liable for damages due to a contractual breach caused by circumstances outside the party’s control.

Q3. What is the scope of the force majeure (FM) clause?

  • Narrow or wide definition?
  • Exemptions, nuances, limitations?
  • Epidemic or pandemic listed in FM clause?
  • Hindrance caused by the FM event?
  • Mutual or one-sided right to invoke FM?
  • Other relevant contract provisions, e.g. change in law?
  • Interdependencies with other contracts?
  • Always interpret in accordance with applicable law

Q4. What requirements apply in relation to notification and claims under the force majeure clause?

  • Notice(-s): time, form and addressees?
  • Reply to FM notices and need to give FM notice to others
  • Consider invoking insurance
  • Always secure documentation of FM impact

Q5. What are the consequences of the force majeure clause coming into effect?

  • Suspension/cancellation/delay to performance?
  • Duration of FM added to the contract’s duration?
  • Do termination rights arise? When? For which party?
  • Alternatives to termination; E.g. renegotiation right?

Q6. What mitigation efforts should be performed?

  • Explicit obligations to mitigate?
  • Obligations based on general principles?

Final remarks

  • Negotiating new contracts?
  • Legal implications on other areas?

If you would like the full report, please send us an email to this address: event@cirio.se

For questions or more information, or assistance in a specific matter, please contact any of the authors of this report:

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