01/04/2020
DOES COVID-19 FALL WITHIN A FORCE MAJEURE EVENT?
There is no doubt, that the pandemic of COVID-19 is presenting challenges and has a global impact on business relationships, commercial and contractual agreements. A particularly frequent question is whether COVID-19 falls within the scope of the Force Majeure clause?
Under the current circumstances, many businesses will find it difficult to perform contracts, entered into before the onset of the COVID-19 pandemic. For this reason, our team in NIKOLAS THOMA LLC, gathered information regarding the aforementioned matter in order to advise our clients and assist them, in the situation where their business is unable to fulfill their contractual obligations due to the pandemic.
A Force Majeure (French word) event , refers to the occurrence of an event which is outside the reasonable control of a party, such as an ''Act of God'', ''an unforeseen'' event or an act of a ''superior power'', which prevents a party from performing its obligations under a contract.
In Cyprus, the term ''Force Majeure'', does not have a universal recognized meaning and the case law is very limited regarding this matter. The Courts, in order to grant a decision, whether a Force Majeure term takes place, will examine the wording and intention of the Parties at the time they have entered into the contract. A Party's ability to claim relief, for a Force Majeure event therefore depends upon the terms of the contract and the Force Majeure provision in particular.
Force Majeure events, can be divided into two categories:
a) Those in respect to a political Force Majeure, such as wars or a coup d'état and non-political Force Majeure,
or
b)as better known, natural force majeure, which deal with physical risks that might impact a business or a project.
Many contractual provisions, set out a specific list of Force Majeure events which are deemed to be events of force majeure beyond the control of the parties, such as ''pandemics'', ''epidemics'' or ''diseases''. The purpose of such a clause into the contract is to exempt the parties from a likely liability in the event they cannot meet their contractual obligations for reasons, which go beyond their control.
The consequences for the parties where a valid Force Majeure event has occurred, will depend on the nature of the affected Party’s obligations under the contract, as well as the consequences and remedies expressly contemplated by the Force Majeure provision. This typically, include an extension of time to perform those obligations or suspension of contractual performance, for the duration of the Force Majeure event. If the Force Majeure event extends over a longer period, some provisions may entitle the parties to terminate the contract.
Whether or not COVID-19 falls within the category of a Force Majeure event, it is a matter of uncertainty and mostly a matter, which will be decided according to the interpretation of the wording of the relevant clause in the contract.
If the clause in the contract specifies a Force Majeure event, such as a pandemic, then there are higher possibilities for COVID-19 to qualify as a Force Majeure event, as it is declared by the World Health Organization as a pandemic. However, again the wording of the relevant clause is necessary to be examined and interpreted carefully.
In the absence of a Force Majeure provision in a contract, the doctrine of frustration may be relied upon. The doctrine of frustration, is only available if not an express provision of a Force Majeure clause exists in a contract. The doctrine of frustration, in Cyprus, is covered by section 56(2) of the Contract Law (Cap.149) as amended. The threshold for proving the test for the doctrine of frustration, is much higher than a Force Majeure provision, since it must be shown that the obligations impacted by the event or circumstance are fundamental to the contract.
In addition, Force Majeure events depend on the wording and the interpretation of the term in the contract. For a future reference, Parties need to pay more attention in drafting and specifying what covers a Force Majeure clause in a contract and what remedies would be available for the affected party in the situation where a Force Majeure Event takes place .
For any further legal advice, do not hesitate to contact our team in NIKOLAS THOMA LLC.
