Insight

Covid-19: Contracts – time to look at the boilerplate

Insight
Law

Found towards the end of the ‘boilerplate’ clauses in a contract – where many don’t usually expect to find any ‘deal-breaker’ issues – force majeure clauses are being looked at very closely by businesses right now.

Very common in commercial contracts, the conventional formulation of a force majeure clause excuses a party’s failure to perform when the failure is caused by circumstances beyond its control. The clause may list specific circumstances e.g. an act of terrorism, a natural disaster, or a pandemic.

Whether Covid-19 is covered by a specific force majeure clause depends on the precise wording of the clause – and even if the wording does cover it, the specific facts of the situation will need to be analysed to see if a party is indeed excused under a contract for its failure to perform due to Covid-19.

We’re seeing businesses dust-off signed contracts to check the force majeure clauses in light of Covid-19. In a supply-chain context, purchasers are anticipating (or may already have) suppliers saying that agreed obligations (e.g. services or deliveries) can’t be met due to Covid-19 and are claiming ‘relief’ under force majeure clauses. Purchasers are checking the contracts themselves to confirm this, and also to understand what their exposure is or could be (and plan for it). Suppliers are looking to understand what the consequences are of being prevented from performing their obligations – do they actually get relief (or are they in breach of contract)? Do they get an extension of time to perform? Do they have to refund any fees or charges to the purchaser? Can the contract be terminated due to a prolonged force majeure event? Purchasers of course will be interested in these same questions as well, and the answers will depend on the specific wording of the relevant clauses.

It’s clear that from now on both purchasers and suppliers will be placing more importance on the wording of force majeure clauses; the provisions will remain part of the ‘boilerplate’ clauses but more time will be spent by the parties to ensure that they are protected in circumstances such as the Covid-19 outbreak.

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