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Impact of the coronavirus (covid-19) outbreak on contract law

  1. a)  Impact on contractual obligations in the wake of the Covid-19 outbreak invoking force majeure clause

    1. (i)  The Covid-19 outbreak will delay, hinder or prevent the performance of contracts. For example, it will cause delay in the performance of contracts and disrupt supply chains.

    2. (ii)  The usual intent of a force majeure clause is to excuse contracting parties from contractual obligations and liabilities while they are prevented from performance (either completely or sometimes partially) by defined events or circumstances.

    3. (iii)  Therefore, a defaulting party will seek to rely on a force majeure clause to avoid the consequences of a breach of contract. However, there is no fixed form of force majeure clause. This means that the Covid-19 pandemic does not automatically qualify as a force majeure event under a contract. It all depends on the wordings of a force majeure clause in each particular contract.

    4. (iv)  The trigger and the consequences of a force majeure clause must also be clearly set out in a contract. Otherwise, the court may not rule in favour of a defaulting party who is seeking to rely on the clause.

  1. b)  Suggested solutions/remedies

    1. (i)  The defaulting party is usually under a duty to show that it has taken reasonable steps to mitigate or avoid the effects of the Covid-19 pandemic. Therefore, the defaulting party must ensure that it takes such steps.

    2. (ii)  If there is a notice or procedural requirement under a contract in order for the defaulting party to rely on a force majeure clause, then the said party must ensure that it complies with the requirement.

    3. (iii)  Companies should not be hasty to enforce every contractual right they have. A pragmatic approach is required. All affected parties should work together to achieve a win-win situation. Mediation is preferable rather than resorting to litigation or arbitration.