Corona Virus and force majeure
The World Health Organisation (WHO) declared the corona outbreak a pandemic on the 11th March 2020 following the global spread of Covid-19. Many governments have implemented measures never seen before. Borders, schools and universities have been shut, and people are encouraged to work from home when possible.
There is no doubt that measures put in place to combat the spread of infection have and will have a devastating impact on global and local economy. Most companies will be affected, through delays, cancellations and reduced production. This opens up to a multitude of legal questions requiring quick answers. What is important is that companies are familiar with contract content in order to evaluate rights and obligations.
Under Norwegian law the main contract principle is contractual agreement should be upheld. If parties cannot fulfil contractual obligations liability clauses come into effect. Force Majeure clauses are common in contracts as unforeseen circumstances can occur. The clause is designed to excuse a party’s failure to fulfil obligation due to natural emergencies such as war, revolutions, blockades, earthquakes and floods, etc. Pandemics are rarely stated as a force majeure cause. In which case can the Covid-19 pandemic exempt a party from contractual obligations?
Each case has to be reviewed individually. How the force majeure clause has been written in the contract will be of great importance. Even though pandemics are seldom are included in a force majeure clause, most contracts have a general clause whereby all matters that parties have no control over are included. One might think that a global pandemic is one of these matters’ parties have no control over.
What are the legal aspects of a force majeure clause? Often parties are given a period of grace to fulfil legal obligations, or the right to cancel contract if the occurrence has lasted longer than 3-6 months and a warning of force majeure has been sent. Chinese companies have already sent out thousands of force majeure certificates to protect themselves from contractual obligations.
In some countries (USA, UK, Hong Kong, Singapore amongst others) a force majeure clause can generally only be used if it is an explicit part of the contract. In most European countries, including Norway, a softer version of the law applies, and the Covid-19 virus will relinquish any contractual agreement if it is proven that the virus has impacted on the fulfilment of obligation, even if a pandemic is not included in the force majeure clause.
If any company wants to cancel an event to prevent economic loss, or to prevent infection that is not enough to invoke a force majeure clause. It is paramount that it is a government policy that has led to any cancellation.
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