If This Isn’t A Force Majeure, What Is It?

By on March 31, 2020

March 31, 2020

An advisory from Mayer Brown attorneys looks at the fate of contracts in the context of a pandemic and widespread business shutdowns, specifically the “legal rights of customers associated with the risk of such interruptions,” and then offers general guidance on how to proceed. The concept of force majeure, meaning a major force that is enough to override or obviate a contract obligation, is usually central to this kind of dispute. Force majeure clauses are often undernegotiated, the authors write, “because of the assumption that these events are rare, that contracting for a force greater than contracting is futile, and the sense that there must be some magic to any words where the parties shift from English to French.” Yet even without a force majeure clause, a party whose obligation is arguably rendered undoable because of COVID-19 may have ways to exit the contract; force majeure is likely the beginning of an analysis in the current crisis, but not necessarily the end. This highly informative post is largely about U.S. contract law, but also considers and links to information on other jurisdictions, specifically the UK and Hong Kong. “We believe that COVID-19 will shine a bright light on the risk of a pandemic, whether it leads to substantial harm or not,” the authors conclude. “Companies likely will face new regulations, and supplier risk management may become more of a requirement and disclosure item than it is today. Public companies, for example, are likely to be required to disclose the risk and what they are doing to mitigate it. Readiness will likely rise in importance as a due diligence item for acquirers, financing sources, and customers. The actual risk might not have changed, but the experience that we are all having will heighten the perceived risk… Your company may create a task force on improving resiliency, and legal participation can provide great value.”

 

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