That the coronavirus, apart from its direct consequences to human health, also has major consequences for our society is something that most people would agree on. It is, however, too early to predict the extent of the consequences and there is currently a great deal of uncertainty. From a legal standpoint, the coronavirus will have indirect and direct consequences. For example, in case of delivery problems or delays caused by the coronavirus, can force majeure be invoked?
The meaning of force majeure and the restrictive interpretation
In Sweden, a force majeure event is generally defined as an unforeseeable extraordinary event that occurs due to an inevitable external force.
A force majeure provision in a contract is usually interpreted restrictively and narrowly. Historically, natural disasters, such as the tsunami in Fukushima, are viewed as force majeure events.
Force majeure provisions usually contain an exemplification of what situations constitute a force majeure event. If any of these events transpire, the clause becomes applicable and force majeure may be relied upon as a basis for non-liability.
If force majeure is applicable, the invoking party may be relieved of liability for breach of contract. For example, deliveries may be postponed or the party in question may be completely exempted from its undertakings, in part or in full. Furthermore, contracts may in some cases be terminated if a force majeure event extends for an extended and unforeseeable period of time. For how long such an event must last before the force majeure event constitutes grounds for termination is usually regulated in the contract.
Statutory law and examples
In Sweden, force majeure is not regulated in statutory law. The question of whether force majeure is a general principle of contract law or not has long been debated in the Swedish legal literature. In short, the debate has focused on whether the principle in the Swedish Sales of Goods Act (Sw. Köplagen) that a party may be excused for non-performance if unforeseeable events outside the party’s control are at hand should be applicable more broadly to all contracts and whether the principle may be applied by analogy. There is a great deal of legal uncertainty on the matter, but the principle could potentially be applied by analogy.
Under the principle that a party may be excused for non-performance if unforeseeable events outside the party’s control are at hand, a party is not liable for a failure to perform any of its obligations if the party proves that the failure was due to an impediment beyond its control and that the party could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.
For example, a country’s public authorities could order factories in certain areas to close. This would most likely would constitute force majeure event if it grinds production to a halt. However, in a situation where a subcontractor in unable to deliver, or where a key employee becomes ill, it is less certain whether such an event would constitute force majeure because such circumstances would be considered to be within the supplier’s sphere of control.
The applicability of force majeure due to the coronavirus – with or without contract regulation
Whether the coronavirus qualifies as a force majeure event will ultimately depend on the exact causal link between the coronavirus and the delivery problem/delay. This means that whether a force majeure provision is applicable or not will as a main rule be determined on the basis of the agreement between the parties. What is regarded as force majeure is thus not carved in stone but can change from case to case and from agreement to agreement - in other words, the deciding factor is the wording of your contract.
What happens in the absence of a force majeure provision will depend on which country’s laws apply in each specific case. Under Swedish law, the principle that a party may be excused for non-performance if unforeseeable events outside the party’s control are at hand may be applicable, but as mentioned above, there is a great deal of legal uncertainty on whether the principle can be interpreted by analogy or not.
Depending on the severity of the consequences in each individual case, it may also be conceivable that a supplier who, for example, cannot deliver and thus cannot fulfil its obligations under the agreement, could request an adjustment of contractual provisions and an adjustment of its obligation to perform, with reference to 36 § of the Swedish Contracts Act (Sw. Lag om avtal och andra rättshandlingar på förmögenhetsrättens område).
Because the assessment will be done on a case by case basis and based on several different parameters, the following checklist is intended to be of assistance when doing such assessments:
- Determine the underlying cause of the delivery interruption or delay – what exact event prevents you from performing your contractual obligations (cause-effect);
- Determine if there is anything else you can do to fulfil your contractual obligations – such as alternative solutions, what can you reasonably do to fulfil your obligations and thereafter determine if there are any insurmountable obstacles that prevent you from performing your contractual obligations;
- Is there an agreement that regulates force majeure? – If not, consider if any relevant principles (such as the principle that a party may be excused for non-performance if unforeseeable events outside the party’s control are at hand) are applicable and attempt to argue that a force majeure event prevents you from fulfilling your contractual obligations;
- Review any force majeure provisions in the current agreement – if you cannot perform your contractual obligations and this is due to a circumstance beyond your control, there is a chance that the force majeure provision in the agreement covers epidemics, pandemics or the like;
- Check what rules apply in your, and the other party’s, jurisdiction – force majeure may be regulated in your jurisdiction or the authorities in your country may alreadyhave declared the coronavirus to be a pandemic (which, for example, Germany has already done), which may facilitate enforcement of a force majeure provision;
- Make sure you meet the formal requirements set out in the agreement – among other things, it is common that the agreement may require you to notify the other party in writing;
- Check with your insurance provider – are you eligible for insurance compensation in the case of damages cause by unforeseeable events or not;
- Damage control – try to, as far as possible, minimise any damages caused by the coronavirus and gather evidence regarding your procedures, public authorities’ regulations and recommendations, and news articles; and finally
- Be careful – see force majeure as a last resort. It can be both expensive and cause a lengthy legal process if the other party does not agree that a force majeure event is at hand. If the question of whether a force majeure event is at hand or not is tried before a court or an arbitral tribunal, it is the party claiming force majeure that has the burden of proof.