PortandTerminal.com, March 27, 2020
WASHINGTON – As of today, the COVID19 pandemic has infected almost 600,000 people globally and put countries in lockdown around the world.
With the disruption to supply chains, international travel, and business operations, many individuals and businesses may be unable to fulfil their existing contractual obligations. Many are now starting to invoke “Force Majeure” clauses in their commercial contracts.
What does “force majeure” mean?
A Force Majeure clause (French for “superior force”) is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible.
An example of an operative clause is: “[ ]. 1 Neither party is responsible for any failure to perform its obligations under this contract, if it is prevented or delayed in performing those obligations by an event of force majeure.
There are dozens of circumstances or events that can be classified as examples of force majeure.
War, riots, earthquakes, hurricanes, lightning, and explosions, for example, are force majeure events. The term can also include energy blackouts, unexpected legislation, lockouts, slowdowns, and strikes.
Hurricanes are a good example in the maritime world where force majeure is invoked.
If, for example, a hurricane occurred that shut down a port, the seller planning to ship its goods through that port would not be liable for late delivery of the goods. Circumstances beyond seller’s control (ie the port closure caused by the hurricane), prevented them from fulfilling their contract with the buyer (delivering the goods on time).
The list of events to be included is a matter of negotiation between the parties.
Is the COVID19 pandemic an example of Force Majeure?
Assuming COVID-19 is a “force majeure” within the meaning of the provision, the party seeking to rely on it must then show two things:
- COVID-19 has made the performance of their obligations impossible
- The outbreak and its consequences were beyond the reasonable foresight and skill of the parties at the time they entered into the contract.
In other words, the party claiming the benefit of the clause must show that they cannot perform their contractual obligations due to unforeseeable, extraordinary circumstance beyond their control.
CEVA Logistics invokes Force Majeure
CEVA Logistics is a global logistics and supply chain company in both freight management and contract logistics. The disruption to supply chains and the free movement of goods caused by the COVID19 pandemic has forced the company to declare Force Majeure.
This means that it is temporarily relieved of its normal contractual obligations where these are rendered impossible or impracticable, due to the Coronavirus epidemic and its effects.
Having declared Force Majeure, CEVA Logistics reserves the right to modify all or part of its services, to change its working procedures and any previously agreed rates and prices, to levy surcharges, or otherwise to take any measures necessary to adjust its business operations and its obligations to its customers, suppliers and other stakeholders, in response to the prevailing circumstances.
We will be hearing a lot about force majeure in the months ahead
The disruption caused by the COVID19 pandemic to businesses around the world is seismic. Invoking Force Majeure clauses in their commercial contracts will be a matter of survival for many. Get ready to hear a lot more about Force Majeure in the months ahead.
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