Coronavirus Considered a Force Majeure in Business Contracts
In almost all business contracts, there will be mention of something called a force majeure. A force majeure is an important business clause for companies because it offers them an escape route, or a release of liability. But what exactly qualifies under this clause?
A force majeure means a superior force, and in a business contract, it means an act of God. When most people think of an act of God, they think of weather-related conditions, such as fires, tornadoes, hurricanes, earthquakes and heavy rains. They think of things beyond their control. Wars, explosions and government actions would qualify. An epidemic can also be considered a force majeure.
This is important to understand because although epidemics are rare—think diphtheria or polio in the early to middle 1900s, or even HIV and AIDs, which began in the 1980s—they do happen from time to time. If you’ve been watching the news lately, you know about 2020’s current epidemic: coronavirus.
The coronavirus outbreak, which started in a food market in China, has now spread worldwide. To date, there have been 2,611,185 cases and 181,235 deaths (4.22.20).
Given this information, for some companies, the coronavirus could be considered a force majeure. That’s because this disease has been causing mass disruption across the world, leading to quarantines and other issues that can impact business operations.
A business can declare force majeure if it cannot perform its contractual obligations for extraordinary reasons. It tends to happen to buyers and sellers in energy and commodity markets, although any business can be affected. However, just because a party in a contract declares a force majeure does not mean the other party has to agree with it. They may find it frivolous, so they can challenge it in a court, since many trading contracts are based on English Common Law. The decision will depend on the language in the contract as well as local laws.
While illness is an unusual reason for declaring force majeure, and some commodity contracts exclude epidemics, many wouldn’t argue in the case of coronavirus. The disease has quarantined entire cities in China. Hospitals are overwhelmed. Streets and workplaces are empty. You can bet that a lot of work isn’t getting done in China right now.
Learn More About Business Contracts
Business contracts often contain tricky language, so it’s important to understand all the main aspects, including the term “force majeure.” While China is primarily affected by a force majeure at the moment, any type of business can be affected.
Protect your business with help from Orlando business contracts lawyer B.F. Godfrey from Godfrey Legal. He has experience with all sorts of contracts and can help you understand what events can impact your business. Schedule a consultation by calling (407) 890-0023 or filling out the online form.