Companies Should Review Force Majeure Provisions as Coronavirus Continues, Law Firm Says

As the coronavirus outbreak continues, companies should review their contracts to determine whether they contain force majeure provisions and what those contracts define as force majeure qualifying conditions, according to a Feb. 13 post from Crowell & Moring. A force majeure provision can be triggered by specific language in a contract clause -- such as natural disasters, human threats or acts of God -- or by official announcements from government agencies and nongovernmental organizations, including the World Health Organization, the post said. But the coronavirus outbreak “presents an unusual situation” because it includes both components -- a naturally occurring element and a government action. China confirmed Feb. 10 that the virus outbreak should be considered a force majeure under Chinese law, the law firm said

Companies should “carefully” examine their force majeure provisions to determine whether they are covered by the virus outbreak and gather information about when the “force majeure event” is expected to end, the law firm said. Companies should also confirm that “notice requirements under the contract have been met.” Parties involved in the contract should collaborate to “evaluate the inventory on hand” and determine if they can access reserve inventories or find alternative manufacturing lines, the post said. The parties are also expected to “assess the affected supplier’s allocation plan.”

In addition, the party who invokes the force majeure provision must prove there are “no alternative means for performing under the contract.” Companies should also be aware of the other party’s rights if the force majeure is invoked, the law firm said, which may include the right to terminate the contract and source from another supplier.