Virus and Business Contracts

Seems these days that everything written has to do with Coronavirus.  Whether this proves to be an earth-shattering event remains to be seen.

If you are in business, you no doubt deal with a variety of contracts.  Many contain what is known as a “force majeure” clause.  This clause exonerates a party from liability for failure to perform the contract by reason of catastrophic events.

Does your force majeure clause exempt you if there is a Coronavirus outbreak in the United States?  Or in China? 

The annoying answer is “it depends.”  Among other things, what exactly does your force majeure clause say?  These clauses often are boilerplate, copied from one agreement to another over time, and may not be specific.

Obviously, specific reference to viral epidemics or to health issues make it much more likely that a clause will protect you if your China supply chain is interrupted, or if your factory must close or your staff falls ill here in the United States.

If your force majeure clause contains general language (“any material event not within the reasonable control of a party”), then the answer may be fact-based; will Coronavirus be like a severe flu but historically foreseeable and within contemplation, or will it be truly major, and unforeseeable?

Has your contract included absolute guarantees of delivery, time of the essence, come hell or high water?  Does your contract have specific provisions about what happens if there is a delay, in terms of deferred delivery and/or repricing?  Does your contract require a particular kind of notice, in substance or timing, in order to invoke your force majeure clause?

A government agency in China will offer force majeure certificates to clients of Chinese companies in certain circumstances.  Whether these certificates will be dispositive when you invoke a force majeure clause will nonetheless relate back to the terms of your contract.

There are other issues to consider:  does your contract entirely fail of purpose by reason of events outside of anything that anyone contemplated (“frustration”); do you have insurance coverage for lost profits or for liability; have you been diligent in attempting to mediate the impact of the virus?

While I generally don’t tout my law firm’s “client alerts” on various subjects (although they are numerous and quite good), in this instance I suggest you take a look at

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