Covid19 and Frustration of Contracts
No doubt, the consequences of Covid19 are currently keeping corporate legal departments busy either examining available contractual exit options or, if at the receiving end, considering how to respond to exit notices from a contractual counterpart. Common force majeure provisions found in most model clauses rarely fit the bill entirely and this would seem to be particularly so with Covid19 which has attracted a mix of hard and soft laws at national and regional level. Inevitably, this will lead to a number of disputes of which some will be settled by the courts or by arbitration.
Although the current times and the immediate future are characterized by great uncertainty, one thing is for sure - Covid19 and its ripple effects are bound to be felt for a considerable time ahead and contracts concluded in this particular environment will have to take special account hereof.
Common to provisions on force majeure, material adverse change / effect, frustration of parties' expectations etc. is that reliance on most of these requires that the event was unforeseen at the time of contracting, say the Exceptional Events clause in FIDIC (clause 18, rainbow suite) or the ICC 2003 force majeure clause (as modelled on the civil law definition of force majeure).
With the Covid19 pandemic in full flow worldwide and the expectations of two and, possibly, three outbreak recurrences and resultant national measures, the model clauses are bound to provide little protection to the party seeking relief with reference to say a public measure preventing or hindering it from fulfilling its contractual obligations.
Hence, for new contracts - and perhaps for those contracts which can be renegotiated - bespoke solutions are required to address such inability.
Such force majeure drafting could include:
- Specific provisions which address epidemics and their effects (and in particular the effects the current, known corona epidemic)
- Following the traditional requirements that must be fulfilled to invoke force majeure (which could be general or specifically addressing the effects of an epidemic):
- The provision of a less strict regime as concerns the requirements of inability to perform;
- Alleviating requirements with regard to "beyond reasonable control";
- Addressing increased costs of performance and alternative means of such performance.
For more information, contact either Carsten Tolderlund at BOPA Law (+45 4138 1905 / firstname.lastname@example.org / www.bopalaw.com)