By Opal Morales, managing director at OBM Legal Consulting
Due to the outbreak of the coronavirus, an important number of international commercial
transactions are being affected. Consequently, many companies are facing several problems
such as the cancellation of contracts, sales or deliveries of goods.
Thus, companies are wondering if they can rely on a force majeure clause to prevent
themselves from having a significant economic loss. Some countries such as The Netherlands,
Spain and France among others, have a definition of the concept of Force Majeure in their
legislation, which in some cases can imply that even if the parties did not include a force
majeure clause in their contract, for some situations they can still rely on such concept.
A force majeure clause is, in short, a legal provision by which the failure of one or both parties
to perform is excused due to the occurrence of a phenomenon beyond the control of the
Practical tips for companies:
1. The wording of your contract is very important. Analyze your contract to assess whether or
not your force majeure provision allows you or your counterpart to suspend or terminate
the contract when certain mitigating circumstances (such as coronavirus) arise.
2. The applicable law to the contract is decisive. The concept and characteristics of force
majeure vary according to the jurisdiction. Consequently, the impact of the coronavirus
outbreak on your contract has to be evaluated in accordance with the applicable law to
your contract and the jurisdiction in which the contract is executed.
3. The circumstances under force majeure can serve as a temporary defense, which must be
lifted as soon as the circumstance is overcome and the operations can be resumed.
4. Register and document all the actions taken by you and your counterpart regarding the
performance of each other’s obligations.
5. Evaluate if your contract or its applicable law has a provision of “change of circumstance”
that opens a renegotiation period in which new terms and conditions can be agreed in
consideration of the new occurrences.
6. If your contract does not have any provision regarding force majeure or change of
circumstance, you can evaluate if the legal system that applies to your contract has a
specific legislative definition of force majeure, which can apply to your contract.
7. Some of the key questions to raise when including a force majeure clause in your contract:
– What is the definition of force majeure?
– How can the counterpart be notified?
– Does force majeure imply the suspension or termination of the contractual
– What are the economic consequences foreseen by the contract in this situation?