Is Covid-19 a Force Majeure?

The serious escalation of the economic and financial crisis that was exacerbated by the Covid-19 pandemic and the lockdown that ensued has caused a far-reaching disruption in business activities. Companies and individuals are trying to invoke the consequences of the pandemic as a Force Majeure in order to avoid being penalized for failing to perform their contractual obligations. The general conditions of some types of contracts could include a Force Majeure clause while the parties could stipulate it in the particular conditions. Agreements concluded before the occurrence of a Force Majeure could benefit from such a clause since Force Majeure is an unforeseeable event that cannot be avoided. Contracting parties must be aware of legal ways and means to avail themselves of a Force Majeure or avoid becoming victims against whom Force Majeure is invoked. They could also explore available alternatives to the principle of Force Majeure.

Covid-19 as Force Majeure

A Force Majeure is an unforeseeable event that cannot be avoided or mitigated and so performing the obligations of a contract becomes impossible. If the main obligations could still be carried out after the Force Majeure event has subsided, the agreement is considered as suspended during this event and will become effective again once the Force Majeure is over. Covid-19 can only be considered a Force Majeure event in the case of agreements entered into before its identification (before December 2019). Force Majeure does not apply to agreements concluded after the identification of Covid-19 because the implications of this virus infection have become objectively foreseeable. According to a note prepared by the Smayra Law Office about Covid-19 as Force Majeure: “It is not possible to provide a boilerplate answer to whether Covid-19 constitutes an event of Force Majeure that absolves a party from performing its obligations (in general or under commercial agreements). The answer may only be determined on a case by case basis. Each agreement and each essential obligation should be assessed independently.” Force Majeure exclusions, however, are often applied restrictively as the courts’ intent, Partner at Smayra Law Office said: “The Covid-19 lockdown is not considered as Force Majeure in all contracts in general. Contracts should be addressed on a case-by-case basis, for instance Force Majeure cannot be invoked in work that could be carried out from home during the lockdown.” Two approaches may be adopted for Force Majeure clauses. The clause may be general in nature providing a general definition of Force Majeure and how the clause would apply without enumerating triggering events. “Clauses with a general definition of Force Majeure are usually more extensively interpreted; whereby any event that meets the agreed upon definition of Force Majeure can trigger the clause’s remedies,” according to the note. The second approach is that the clause extensively enumerates the events that would qualify as Force Majeure. “Clauses enumerating the events of Force Majeure are usually more restrictively interpreted; whereby only the events listed in the clause would trigger the clause’s remedies,” the note said.