Force Majeure Clause in Consultancy Agreement

Note: This example language applies to parties who are entering into contracts in the midst of the ongoing Covid-19 pandemic and wish to ensure that the circumstances in force at the time of performance are not considered force majeure events. Since the state directives were not mandatory, it is still physically and legally possible for the group to perform. A standard force majeure clause probably does not apply to this situation. Due to quarantines imposed by the Chinese government, Wuhan Parts` workforce cannot come to work, and Wuhan Parts, in turn, is unable to deliver alpha parts to the supply chain link (which in turn cannot produce enough widgets to meet its obligations to the manufacturer). Alpha parts are sophisticated and customized products that are not available from other sources. The link in the supply chain cannot overcome the problems caused by quarantine, and its performance for the manufacturer is excused by a case of force majeure. Comment: Typical events of force majeure are natural causes (fire, storms, floods), state or social measures (war, invasion, riots, strikes), infrastructure failures (transport, energy), etc. Given the Covid-19 pandemic, this sample also includes epidemics, pandemics and quarantines. The party affected by force majeure is generally required to immediately inform the other party in writing of the occurrence of the force majeure event (in reasonable detail) and the expected duration of the effects of the event on the party. Some agreements may provide that an interruption in the performance of a party due to force majeure beyond a specified period of time is a ground for termination of the contract. Value and risk analysis: The inclusion of a force majeure provision protects both parties by allowing excused, delayed or suspended performance or even termination of the contract if its performance is prevented by certain types of catastrophic events beyond the control of the parties.

Force majeure provisions are considered standard inclusions in commercial contracts. Coverage of epidemics, pandemics and quarantine extends this protection. Parties who fail to include a provision of force majeure in their contract run the risk that their failure to perform the contract for reasons beyond their control will nevertheless constitute a breach. With regard to the explicit exclusion of the Covid-19 pandemic from the scope of force majeure, the interest is that the parties are able to reach an agreement during the pandemic crisis, provided that the current crisis has already been included in the risks assumed by the parties and is not a reason to excuse performance. On the other hand, the risk of explicit exclusion from the Covid-19 pandemic is that if the pandemic situation changes radically or deteriorates sharply, the parties will not be able to invoke force majeure. A logical consequence of the obligation to mitigate or replace substitutions rule is that if there are obligations that can still be fulfilled under the agreement, the party invoking force majeure is likely to still have to comply with them. Another doctrine, such as frustration of purpose, could still excuse performance if the fulfillment of the remaining obligations is a completely empty or futile gesture. Scenario B: A band has signed a contract with a venue to host a concert. The State in which the place is located orders the closure of the place as part of a mandatory general quarantine order. It is now legally impossible for the place to fulfil its obligations under the contract. Almost all standard force majeure clauses release the venue from hosting the performance. All relevant employees of the consulting firm are EU citizens who cannot be physically present at the client`s site due to the recent travel ban in the United States.

However, the consulting firm can collect all the data it needs to create its recommendations remotely (via email, video conference, etc.). The consulting firm can overcome the obstacle through reasonable efforts, so force majeure does not apply. The advantage of impracticability as a doctrine is that, particularly in post-restitution jurisdictions, it can be used to offset an unfavourable force majeure clause. Let`s say your force majeure clause doesn`t list outbreaks as an excusing event and you`re in a jurisdiction that narrowly interprets catch-all phrases, so you may not be able to avail yourself of force majeure protection. While the contract should not excuse performance, the same facts applied to commercial impracticability may act as an affirmative defense. As the comments on reprocessing show, commercial impossibility is almost synonymous with force majeure; the fact that a contract suddenly becomes a loss of money for one party is not enough. Instead, a massive and overriding factor such as fire or war must directly impede compliance with a party`s obligations. Non-standard inclusions are particularly important for companies struggling with a highly visible second-order impact of COVID-19: financial market volatility. The general rule is that even the kind of extreme financial downturns we`ve seen in recent days are not considered force majeure events.

For example, after the 2008 financial crisis, the courts repeatedly concluded that market forces were not considered a case of force majeure.2 Although there were exceptions, this was usually due to the fact that the specific force majeure clause contained non-. Standard B (for example. B, a reference to a “change in economic conditions”) that could be applied to financial turbulence. In the absence of a force majeure clause, the parties are left to the grace of the narrow common law contractual doctrines of “impracticability” and “frustration of purpose,” which rarely lead to an apology for performance. Courts tend to interpret force majeure clauses restrictively; That is, only events listed and events similar to those listed are covered. For example, while terrorist acts may be a specific case of force majeure, it does not necessarily follow that a court would also excuse the execution of a party because of “threats” of terrorism. Therefore, it is especially important to specify all types of circumstances that you plan to prevent or hinder the flow of your meeting. Understanding Force Majeure Clauses, Janice M.

Ryan. Finally, some clauses on force majeure are very generalized and refer only to “any force majeure or other circumstance beyond the control of the parties”. Others contain concrete examples (“fires, floods, earthquakes, tsunamis, wars, terrorist attacks, strikes, riots..”) and then conclude with a collective term such as “or any other circumstance beyond the control of the parties that they cannot overcome by reasonable and prudent efforts”. Whether this type of language encompasses COVID-19 disorders is likely to vary significantly from province to province or province to province. The laws of some states will interpret these terms broadly with respect to the entire contract, its subject matter, and the expectations of the parties, but others will read them carefully and interpret them only to include events that are essentially similar to the specific examples.1 According to local contract interpretation rules, these seemingly broad and generalized terms may either clearly include COVID-19, or turn out to be narrower than expected. Also note that most force majeure clauses do not excuse payment obligations, including rent payment, operating costs, and loan payments. An important nuance to note here is that courts will rarely accept the argument that “making a profit” is the “purpose” of a contract to enforce this doctrine, otherwise any unprofitable contact could be avoided. To illustrate this point, we can look at scenario C. While force majeure will likely not excuse the group`s performance, they probably won`t be able to evade their obligations either, arguing that the contract`s objective has been thwarted. The reason for this is that the underlying purpose of the contract is not to make money or sell tickets: the purpose is to organize a concert in the hall, and it is still quite possible to do so.. .