The negative impact of Coronavirus on contracts

  • The COVID-19 Coronavirus is already disrupting both public life and business across the globe as various countries, particularly China. All engaged in international business should consider the legal ramifications this may have on their activities. Although much will depend on the specific provisions of relevant contracts and the available rights and remedies under the applicable law, the first port of call will usually be the contractual “force majeure” clause.
  • A “force majeure” clause generally allows a party “relief” if a “force majeure” event impacts materially, or renders impossible, the performance of the contract. This relief is usually the suspension of the parties’ obligations under the contract during the “force majeure” event, and, if the event continues for a certain period of time, the right to terminate the contract.

In order to obtain this relief, a party will usually need to:

a-  prove that the event that has materially impacted, or rendered impossible, the performance of the contract, falls within the definition of “force majeure”; and

b-  comply with any notice provisions, or other preconditions (e.g. taking steps to mitigate its losses), specified by the “force majeure” clause.

  • To maximise the chance of obtaining relief under a “force majeure” clause, parties should consider both the direct impact the coronavirus may have had on their contract as an epidemic, as well as the effect of the numerous government actions (including travel restrictions, quarantines, and increased border checks).
  • Parties should compile as much evidence as possible on the effects of these events, and further consider:

a- making reference to the declaration by the World Health Organisation (WHO) on 31 January 2020 that the coronavirus constitutes a “public health emergency of international concern”;

b- if the party is based in China such as a supplier to a Qatari company, applying for a “force majeure” certificate from the China Council for the Promotion of International Trade.

Force Majeure provisions under Qatari Law

  • It is noteworthy to recall that a force majeure clause is a contractual risk allocation mechanism that essentially provides that if a contract party is prevented from performing its contractual obligations due to the occurrence of certain events beyond its control (known as force majeure events), then the nonperforming party is excused from its contractual obligations without being deemed to have breached the contract.
  • Although force majeure clauses are largely considered as “boilerplate” provisions in long-term contracts, events such as the recent outbreak of the coronavirus, and its ongoing extremely disruptive effects in China and across the globe, are bringing the concept of force majeure into sharp focus.
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