Coronavirus: a force majeure event?

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Coronavirus: a force majeure event?

With the number of coronavirus COVID-19 cases soaring globally, businesses are also feeling the effects of the crisis, as travel restrictions and factory closures in China increase and the repercussions of the virus escalate.

Both Apple and Jaguar Land Rover have announced the virus could result in supply issues and on the 6th February 2020, one of China’s biggest liquefied natural gas (LNG) buyers was reported to have declared “force majeure” for LNG deliveries from at least three suppliers. This is the first official declaration of force majeure by an LNG buyer due to the coronavirus and LNG sellers are reported to have rejected this declaration, with both parties disputing the legal basis for the declaration.

Force majeure is a common clause in commercial contracts and refers to the occurrence of certain events outside a party’s control, which in turn prevent a party from meeting their contractual obligations. Whether the coronavirus outbreak would be covered by a force majeure clause will depend on the wording and scope of the clause, the steps taken by the party seeking to rely on it and whether the outbreak would constitute a foreseeable event.

Businesses should consider both the direct and indirect impacts the coronavirus could have on their contractual obligations and what risks they may be exposed to. We would recommend companies review their commercial agreements with customers and suppliers, in order to identify if force majeure events are included, how these are defined and whether the clauses might be triggered. It is also prudent for businesses to consider how to address claims of force majeure from suppliers, as well as how to pursue claims of their own.

If you have any questions on force majeure clauses or would like us to review your commercial contracts, in light of the unprecedented impact the coronavirus is having on trade and commerce, please contact our Commercial team.

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