As coronavirus fails to ease, companies seek defence of ‘force majeure’

Force majeure refers to unexpected external circumstances that prevent a party to a contract from meeting their obligations

With the coronavirus outbreak that originated in Hubei province, China, showing no signs of abating any time soon, some companies that buy and sell goods in the Chinese market are taking interest in the legal defence of “force majeure.”

The death toll in China from the epidemic continues to climb and now stands above 1,000, more than the SARS epidemic two decades ago, with more than 42,000 confirmed cases in China and 319 cases in 24 other countries.

WHAT IS FORCE MAJEURE?

Force majeure refers to unexpected external circumstances that prevent a party to a contract from meeting their obligations. The underlying event must be unforeseeable and not the result of actions undertaken by the party invoking force majeure. Natural disasters, strikes, and terrorist attacks can all be force majeure events. Declaring force majeure may allow a party to a contract to avoid liability for nonperformance.

IS THE CORONAVIRUS OUTBREAK A FORCE MAJEURE EVENT?

Legal experts said that the coronavirus likely qualifies, but any company invoking force majeure would need to show that it is effectively impossible to perform their contractual duties as a result of the outbreak. In other words, a company is not excused from an obligation just because it has become more costly or time-consuming, said John Scannapieco, a Nashville, Tennessee-based lawyer who advises U.S. companies on Chinese transactions. The coronavirus is “not carte blanche to say force majeure,” said Scannapieco, a shareholder at law firm Baker Donelson. “You have look at the facts and circumstances.”