COVID-19 IMPACTS ON SUPPLY CHAINS
How Force Majeure in Contracts May Apply
Coronavirus is resulting in substantial disruption of supply chains. Does a force majeure clause provide protection for parties affected by this disruption?
The short answer is, it depends on:
- whether there is a force majeure clause in a contract; and
- the language of the specific force majeure clause.
Force majeure provisions operate by excusing the affected party from its contractual obligations, during the period it is prevented from performing them due to a force majeure event. Force majeure is relatively common in supply of goods contracts (especially long-term supply contracts) but is less common in provision of services contracts (for example, construction contracts, professional services contracts).
In common law jurisdictions like Australia, force majeure is a creation of the contract. This means that, outside of a contract, there is no implied definition of force majeure. Rather, in order to determine whether a particular event falls within the ambit of force majeure, the specific wording of the relevant force majeure clause in the contract is critical.
If there is no force majeure clause in a contract, then the concept of force majeure does not apply to that contract…