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Is your Force Majeure clause effective?

The Coronavirus has had a huge impact on our day-to-day lives.

The full impact on the economy is yet to be seen, however, many businesses are starting to struggle. The news is already reporting that supply chains have been disrupted, certain products are harder to source and some companies are unable to fulfil their contractual obligations.

Review Your Contracts

If your business has started to struggle to fulfil customer orders or it has suffered delays or cancellations to orders purchased from its suppliers, now may be the best time to review the contracts governing those contractual arrangements.

Many commercial contracts contain a ‘Force Majeure’ clause. A Force Majeure clause attempts to address unforeseeable events outside of the control of the parties involved. It outlines what the legal repercussions are should one of the party’s fail to deliver on their contractual obligations.

Force Majeure clauses can contain examples of these unforeseeable events and can list, floods, terrorism, war and pandemics.

Can I rely on my Force Majeure clause?

Whether a Force Majeure (FM) allows you to claim some form of compensation for service disruption will depend on the precise wording in the contract. It will be crucial for the breadth of the FM clause to be carefully considered in each instance.

It is unlikely that a business can rely on a Force Majeure clause because the costs of it sourcing and supplying its goods has risen  as a result of the Coronavirus pandemic.

My Force Majeure clause includes ‘acts of God’. Can I rely on this?

Depending on the precise drafting of the Force Majeure clause in question, the clause may make reference to ‘acts of God’. In legal terms, an ‘act of God’ may be defined as an extraordinary occurrence, which could not have been foreseen and that could not have been guarded against.

The phrase ‘unprecedented’ is used daily to describe the current turbulent times we live in. The Courts are very rarely asked to consider whether FM clauses in commercial contracts containing ‘acts of God’ can be relied on. Given the current climate, it may not be long before the Courts are asked to consider this point again.

What other points should I consider?

Again, depending on the precise wording, there may be an obligation on one or both of the parties to the contract to limit their losses as a result of the failure of performance of contractual obligations.

It is safe to say that everyone agrees that these are extremely difficult times. If you believe there could be an issue with your supply chain, or a supplier has notified you of delays or cancellations to orders you have placed, it is worth considering a commercial discussion with the supplier. A new mutually beneficial arrangement could be reached; if this happens then any revised deal should be documented.

How can Linder Myers help?

Linder Myers can carry out an initial assessment of your commercial contracts to check the effectiveness of your Force Majeure provisions. Contact us on 0800 042 0700 or email today.

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