List of Abbreviations

Abstract

Force Majeure COVID-19 emerged as a critical legal issue when the pandemic outbreak triggered unprecedented challenges in contractual obligations worldwide. With the breakout of Covid-19, it was expected that the number of Force Majeure claims would increase, particularly in arbitral tribunals. The disputes were expected to be complex because of the threatening nature of Covid-19, causing changes in the social and economic world, particularly in the business sector. Whether Covid-19 would trigger a surge in Force Majeure claims in commercial contracts was and still is an issue of concern attracting significant interest from legal, business and academic researchers and industry players. Notably, Force Majeure is not a directly defined concept in an identical way across different jurisdictions.

This research paper aims to analyse Force Majeure contract law in common law and civil law jurisdictions in light of the current Covid-19 pandemic. It acknowledges the unprecedented challenges caused by the Covid-19 pandemic in a globalised society. Implementing restrictions such as lockdowns, quarantine, travel restrictions, and closing workplaces affected the parties’ ability to fulfil their contractual obligations.

This research will further elucidate and scrutinise how Force Majeure clauses were previously dismissed by drafters and were rarely conscious of including in the contracts. Even if the Force Majeure clause was added, little concern was placed on the wording of how the clauses were drafted. As different countries follow different legal systems, there is hardly any uniformity in interpreting a Force Majeure clause. For instance, in common law jurisdictions (e.g., England and Wales, United States of America and India), no statutory provisions guide the application of Force Majeure, and parties primarily rely on contract clauses on Force Majeure. However, civil law jurisdictions (e.g., UAE, Germany and China) have statutory provisions for applying Force Majeure.

Force Majeure COVID-19 has elicited interest among contractual parties to not only add Force Majeure clauses in business contracts but also carefully consider the wording of such clauses. This is even more true for businesses in common law countries where the interpretation outcome is mainly based on the contract’s language as opposed to some statutory protection granted in civil law jurisdictions. Subsequently, this paper will provide key recommendations for drafters to consider while drafting an effective Force Majeure clause and overcome any lacunae of protection formed due to poor wording of the Force Majeure clause.

Introduction

The Covid-19 outbreak in 2019 that elevated from an epidemic to a pandemic disaster caused unprecedented challenges across the globe affecting all aspects of society. By April 2020, the outbreak was recorded in more than 210 countries, causing numerous casualties and challenging most countries’ public health systems. Many regions, countries, and cities were closed through restrictive measures such as lockdowns, closing entry and exit in borders, imposing prohibitions on exports, and closing workplaces. China first introduced the lockdown policy in cities such as Wuhan, and other countries such as South Korea, Japan, Malaysia, and Italy followed suit. As the pandemic spread across the globe, numerous other countries established countermeasures to prevent further spread. Certainly, the measures adopted to combat the pandemic impacted different sectors such as tourism, health manufacturing, real estate and construction. The pandemic affected productivity by limiting the mobility of the most important factor of production (human capital). The pandemic was an international concern that affected the ability of businesses to undertake their activities, severely impacting commercial contracts and hampering the ability of parties to fulfil the obligations as stipulated in such contracts. As a result, this triggered the Force Majeure clause, which excludes contractual parties from the contractual obligation because of reasons beyond their control. However, the application of Force Majeure is expected to result in challenges because of the jurisdictional differences. It is expected that the provision of the clause will be interpreted differently in these jurisdictions.

For this reason, evaluating each party’s Force Majeure clause within existing contracts is critical when handling specific claims. The interpretation of Force Majeure claims based on contractual obligations appears to be more important than on previous occasions because of extensions in the delivery of goods. Furthermore, different parties deployed a number of measures focused on mitigating the impacts of breakouts and the associated costs as the costs of fulfilling contracts were changing in unpredictable ways. The pandemic has also led to uncertainties that might alter business long-term because the end of the pandemic is uncertain. The challenges in interpreting Force Majeure are also compounded by reduced labor productivity, resulting in challenges in defining the parties’ responsibilities in the long run. Arbitral tribunals dealing with interpreting Force Majeure clauses in different jurisdictions have experienced challenges in classifying the problem as either a natural disaster or a pandemic.

Thus, this paper will analyze the implications of Force Majeure provisions in international contracts and how they differentiate from other equally relevant concepts, such as undue hardship and material adverse change. In particular, this paper will focus on common law jurisdictions, where a comparison will be made of English law to the US and Indian law, and analyze selected civil law countries, such as China and Germany, with greater emphasis on the UAE Force Majeure law.

Differences Between Force Majeure And Undue Hardship or Material Adverse Change During COVID-19

Force Majeure

Determining the legal implications of contracts affected by Covid-19 will depend on defining the event’s nature concerning whether it will be classified under Force Majeure, undue hardship, or material adverse change. From the definition, Force Majeure is a French term that means a superior and irresistible force. Based on this clause, in legal terms, the parties are freed from fulfilling their contractual obligations because of an unforeseen event that emerges beyond their control. As a result of the event, it is impossible for a party to fulfil the contractual obligation, and the clause exempts them from performing without incurring penalties. The events classified under Force Majeure include natural disasters such as fire, wars, traffic accidents, strikes, sabotage, revolutions and terrorism. However, in cases where the parties expect the possibility of the events happening, the Force Majeure clause is not applicable. For instance, if there was a weather prediction that flooding might be experienced in a certain region, or floods are a frequent occurrence in a specific area, it is expected that the parties should take a precautionary measure to ensure the fulfilment of the contractual obligation. In such an event, the Force Majeure clause cannot be triggered for the party’s non-performance of its obligations.

Force Majeure is presumed to be an unforeseen event and has an external impact on the contractual relationship. For instance, in Elavon Inc. v. Wachovia Bank, National Association, the Georgia Federal Court ruled that the unprecedented financial crisis in 2008 did not constitute a natural event that could trigger the Force Majeure clause. For this reason, the parties were not excused from performing the specified contractual obligation. In a similar case, Tri-Town Construction Company v. Commerce Park Associates 12, the Rhode Island Supreme Court ruled that the collapse of the economy caused the purchaser’s inability to obtain financing and did not constitute substantial events classified under the Force Majeure. Similar to the Tri-Town case, the parties were not excused from non-performance. In India, similar jurisprudence has been set in numerous cases where it was identified that the courts observed a strict but flexible approach in defining events that can trigger Force Majeure. For instance, in Alopi Prashad and Sons v The Union Of India, the Supreme Court ruled that commercial hardships cannot be classified as events that trigger the Force Majeure clause. Another case that defined the interpretation of Force Majeure is Satyabrata Ghosh vs Mugnareem Bangur & Co. the Supreme Court asserted that impossibility, as outlined in Section 56, should be interpreted from a practical perspective, not in a literal sense. Additionally, the Court held that it was impermissible to import and quote English law to Indian Statutory provisions directly.

Undue Hardship/Material Adverse Change

Though closely relatable to events classified under Force Majeure, undue hardship is classified as an unforeseeable condition or event that results in challenges or suffering, limiting the ability of the party to meet a contractual obligation. The undue hardship is not strict in classifying the events because they can be legal, political, economic, or financial. The party triggering this clause must demonstrate that they had taken utmost care, but still, the event hindered their ability to deliver their contractual obligations. In the case of hardship, it is recognized that the parties still must meet their contractual obligation, though they might face obstacles causing delays. According to Chen-Wishart, Loke, and Ong, it is considered undue hardship if the contractual obligation’s performance is unduly burdensome, but the parties are still expected to deliver. Triggering the undue hardship clause can result in parties renegotiating alternative contractual terms. For this reason, undue hardship provides more flexibility and enables the parties to balance the risks arising from the unforeseen event.

From this explanation, undue hardship and Force Majeure are triggered by unforeseen events beyond the control of the involved parties. The former allows for parties to renegotiate terms in consideration of a hardship event in the hardship clause, while the latter might result in total non-performance, resulting in termination or suspension of the contract. In such cases, the parties bearing the burden will not be liable for non-performance and termination of the contract. However, when the contract terms have such clauses, they must refund all payments for services or goods yet to be delivered. The terms are also considered in cases involving material adverse changes that substantially impact the transaction’s profitability. All changes under material adverse change are considered individually, where the events resulting in challenges in contractual performance are outlined. There is an analysis of the occurrence and the consequences conducted. The general consideration under this classification is that the event that caused the triggering of the clause is beyond the parties’ control. Such events can fall within the economy, like the Covid-19 pandemic, a financial crisis, or fire and terrorism.

As previously illustrated, the Covid-19 pandemic will likely increase the triggering of Force Majeure and undue hardship of material adverse change clauses. More specifically, the material adverse change will particularly apply to contracts that were not completed because Covid-19 created a material adverse event that will impact corporations’ ability to meet their contractual obligations. On the other hand, Force Majeure clauses can only be triggered when companies have entered contractual obligations. However, the declaration of a Covid-19 pandemic impeded their ability to meet the contractual obligation. Triggering the material adverse change will require the parties to renegotiate the terms and allocate emerging risks that might spill over in the long term. Covid-19 disrupted the global supply chain, resulting in unprecedented business risks. Notably, it is expected that triggering the Force Majeure will be subject to legal arguments and treated on a case-to-case basis. Legal pundits have expressed the need for reasonable control because the Force Majeure event is not defined under English law. In triggering the clause, firms might use government actions, other legal measures, and other measures applied by different countries to combat Covid-19. For instance, issues such as the closure of borders and restriction of movement will be cited as material issues affecting the performance of contracts.

 Key Elements and Provisions of Force Majeure COVID-19 Claims

Based on the strict observation of events that can be used to trigger the Force Majeure clause, one would have dismissed its applicability in a commercial contract. However, the Force Majeure COVID-19 pandemic was characterized by significant disruptions in the global supply chain because actions that different governments took to prevent further spread resulted in events that can be considered under Force Majeure. The disruptions resulted in numerous disputes, such as Gibson v. Lynn University discussed below, that required the courts to determine whether the Force Majeure clause could be applied. Since Force Majeure was introduced in law, numerous case laws provide cautionary lessons that corporations can consider when formulating and interpreting commercial contracts. Notably, the clause was introduced to allocate the risks arising from an unforeseen event that prevents or causes performance delays.

Parties should consider ensuring that an informed approach is adopted when including the Force Majeure because if the clause is included without thoughtful consideration, it might result in unfortunate events. For instance, the Court might interpret the clause as meaning that the parties to the contract had bargained for the unforeseen risks. Force Majeure comprises four critical components that the contracting parties should consider with diligence. The factors that have been considered as Force Majeure are few and on rare occasions. In most cases, across different jurisdictions, the cases are always facts sensitive. However, the interpretation of the clauses for an event to be considered Force Majeure is often inconsistent and unpredictable. The scope and impact of Force Majeure clauses mostly depend on the contractual language adopted in a contract. This fact informs corporations’ that they need to thoughtfully consider the language when drafting and interpreting Force Majeure clauses in a commercial contract.

Irrespective of whether a jurisdiction is based on common law or civil law, there is a narrow approach to interpreting the clauses as Force Majeure. Based on a narrow scope of the application of Force Majeure, the presumption is that the parties to a contract should not exempt performance unless provided for in the contract. Mostly, the contractual language of a Force Majeure clause is construed narrowly, and ambiguous aspects are resolved against the party making a claim. For an event to be considered Force Majeure, it must prevent performance, not just hinder or make the performance uneconomic. For instance, parties might be exempted if the party to the contract suffers economic loss because of the event, rendering them unable to fulfil their contractual obligation. Further, for an event to be considered Force Majeure, it must be beyond the parties’ control and should not be within the scope of foreseeable business risk. Considering the event as Force Majeure, the claiming party must demonstrate that they made all reasonable efforts to mitigate the event and its impacts on the counterparties. Such ‘reasonable efforts’ include financial losses, though the extent of the losses considered should be finite and considered based on the circumstances. There are four critical components of enforcing a Force Majeure, which will be elaborated on below: Firstly, the breach that the promisor seeks to be exempted; Secondly, the specific event considered Force Majeure; Thirdly, the causal connection between the event and performance failure, and finally, the scope of what is to be relieved from performance.

A. The Breach That The Promisor Seeks To Be Exempted

When parties are drafting a contract, particularly the Force Majeure clause, they should consider the breach resulting from the unforeseen catastrophic event. In most contracts, the parties often ignore defining the events that can be considered Force Majeure. However, such parties can consider that if the clause is invoked, the counterparty will excuse a default, delay or failure. The clause can also consider that the affected party might fail to meet some conditions outlined in the contract. Most contracts broadly describe the Force Majeure, but some are specific, excusing either of the parties from performance. The parties should be thoughtful and artful because narrow contract clauses can result in challenging outcomes. For instance, in Gibson v. Lynn University, a student sued the university with a claim that it breached the contract of providing in-person learning resulting from Covid-19 by providing virtual learning. It was mentioned under the Force Majeure clause that there would be no refund for tuition if the university operations were suspended because of an event considered under Force Majeure. However, the university’s efforts to trigger the Force Majeure clause were denied, and it was argued that the clause did not apply because the university was not suspending its operations but offered alternative learning avenues.

In some cases, the breach emerging from non-performance is carved from the Force Majeure clause. This case is observed mostly in commercial cases, such as if a tenant cannot pay rent and other related fees. In numerous case laws, the Court acknowledges and honors this carve-out, noting that the parties agree that the tenants face the risk of non-payment when the unforeseeable event happens. For instance, in In Re CEC Entm’t, Inc., the Court ruled that the inability of the party to pay some of the money could not be considered under Force Majeure. Many cases have also been filed with similar rulings that lack of money would not be considered under Force Majeure because many factors can cause money challenges.

B. The Specific Event(s) Considered Force Majeure

The clause must specifically describe the events considered under the clause Force Majeure to excuse the party from performance. In most contracts, the definition of Force Majeure generally starts with words such as “unforeseen occurrences beyond the control of the parties”, which is followed by a long list of examples. In other contracts, the clause starts out by outlining the events considered, followed by a phrase like ‘and other similar events beyond the parties’ control.’ Most contracts include a list of the events considered under Force Majeure, which is perceived insufficient considering that parties face uncertain business environments. Some contractual language that parties include is “truly unforeseen event.” In the context of this assignment, the list might not include the word’ pandemic,’ presented in* JN Contemporary Art LLC. v. Phillips Auctioneers LLC*. The Court had to determine if the contracting parties’ intention at the time of writing the contract allocated the pandemic risk as a factor that might hinder or prevent the performance of the contractual obligation. In the case, the Court noted that the Force Majeure clause was open-minded because the clause stated “…circumstances beyond our or your reasonable control,” followed by many examples. Although the term pandemic was included in the list, the Court presumed it was considered in the ‘catch-all’ statement. The Court determined that the Covid-19 pandemic qualified as a Force Majeure event to be considered in the contract.

C. The Causal Connection Between The Event And Performance Failure

When parties are formulating the Force Majeure clause, they must articulate the necessary causal connection between the Force Majeure event and the party’s failure of performance. From this argument, parties must place some latitude by expressing how direct or the proximate cause is, reflecting the insurmountable burden inhibiting the promisor from exact performance. Early observation of the cases resulting from Covid-19 did not cite depressive economic conditions, which could have caused the promisor’s failure to perform. Notably, such distinctions in common law concerning frustration and impossibility of purpose have been perceived inhospitable, particularly for parties in the past year. This fact has been observed in the New York commercial center, where it was declared that economic and financial challenges, even caused by unforeseen events like Covid-19, will not be used as an excuse to exempt a party from performance. The courts are refusing to grant non-performance based on frustration and impossibility theories. An example of such a case was in Lantino v. Clay LLC, wherein the legal standard used in denying exemption of non-performance was limited to only performance affected by an act of God or by law and not financial difficulty or economic hardship.

The issue of causal relationships has led to numerous concerns with varying twists. For instance, in In Re Hitz Restaurant Group, an interesting twist was observed because the tenant invoked the Force Majeure clause in the lease because it included government action as an event considered under Force Majeure. However, the Court observed that the government of Illinois only prohibited on-premise dining, and the Court ordered the rent to be reduced on pro rata. This decision was made to ensure that the rent paid reflected the proportion of the revenues that the restaurant generated from takeout and deliveries.

D. Scope of What is To Be Relieved from Performance

The scope of relief is another critical element in the Force Majeure clause that parties should consider, and it should define the scope of relief from performance for the promisor in the event of Force Majeure. When drafting and reviewing contracts, parties must consider the relief offered under the Force Majeure clause based on anticipation of the needs that a party might require on the occurrence of the considered Force Majeure events. In this consideration, the parties should craft the language to outline the outcomes or the specific consideration to be made when the Force Majeure happens. For instance, the clause can consider exempting the party from any future performance if the party has substantially performed and the Force Majeure has inhibited further performance. For instance, in Netone, Inc. v. Panache Destination Management, Inc., the parties had a contract for a live event in a resort. The case’s determination noted that the Covid-19 pandemic was a Force Majeure event, and the parties were relieved from any future performance. In the matter, the parties claimed that it had already placed a significant deposit, nearly completing the payment, which implied it had nearly completed its performance. Further, before the pandemic, the resort demonstrated that it had started preparing for the live event, which required completing some work, but it had not hosted the event. The party that had booked sued the resort to recover the deposits; the Court dismissed the claim because the pandemic was a Force Majeure event, and the parties were relieved from further future performance. Notably, the Force Majeure clause did not include a provision stating that in case of non-performance caused by a Force Majeure event, the parties were required to return the deposit that had been made.

 Critical Assessment of Force Majeure Contract Law Under Different Legal Systems

Common Law Jurisdictions

I. England

Under the English common law, Force Majeure is considered a creature of law, and it is not considered under the precepts of common law. It is considered a contractual term, which parties expressly include in a contract as a provision, which means that it cannot be implied. For this reason, parties to a contract have the freedom to make agreements concerning what is considered a Force Majeure and the consequences of such events. Force Majeure is treated as a mechanism used by parties to facilitate the allocation of risks emerging from Force Majeure events that can hinder or delay parties from specific performance. In such a case, the clause relieves the parties from the exact performance without incurring liabilities imposed in general non-compliance. Based on the crafting of the clause in a contract, Force Majeure can exempt, suspend, or extend the period of performance when the Force Majeure event occurs beyond the parties’ control. Such events considered under the clause include an outbreak of war, terrorism, floods and fires. Notably, the list is considered non-exclusive because natural disasters extend to events and circumstances beyond the parties’ reasonable control. However, the general principle that defines events beyond the parties’ control is defined peculiarly in each contract. For this reason, there is no generic answer concerning whether a party can invoke the Force Majeure clause in the contract. As noted, the parties must dutifully consider the wording of the Force Majeure clause, which informs the parties on the best approach to adopt when the relevant circumstances arise.

In addition, under English law, it is also critical for parties to consider the Unfair Contract Terms Act (UCTA) 1977 concerning drafting the Force Majeure clauses. Under the UCTA, a party to a contract cannot primarily rely on a specific term to exclude liability when they breach the contract terms. The UCTA only allows such terms when they satisfy the test of reasonableness (Section 3(2) UCTA). In most cases, Force Majeure clauses are always considered reasonable, but there are incidents where they are drafted broadly, covering issues such as increment in costs, or they cover factors under the party’s control. However, unless a market standard defines the parties’ roles, each Force Majeure clause is always different. As a result, it is not easy to offer definitive guidance, and even when there is a market standard, contract performance is always different between counterparties. When a dispute arises concerning the scope of the clause, the English Courts apply the principles of contract interpretation.

In the UK, like numerous other jurisdictions across the globe, the British government implemented various measures such as lockdowns because of the Force Majeure COVID-19 pandemic. The introduced measures resulted in contracts being excessively burdensome or impossible to accomplish. As a result, it has led to legal challenges where businesses are citing frustration from Covid-19 as a Force Majeure. In English common law, there is no general rule regarding parties’ conduct in the event of a Force Majeure. A recent case was Dwyer (UK Franchising) Ltd v. Fredbar Ltd, where the Force Majeure clause was upheld based on a cause the parties had included in the contract. The clause stated that performance would be suspended at any time when either party was hindered from the performance by a supervening event. The clause stated that any party could stop performance “by any cause which the Franchisor designates as Force Majeure.” The Court relied on this clause in making the determination.

II. United States

In the US, Force Majeure is an event, act, or circumstance beyond a party’s control or contemplation. Under common law that guides the US laws, there is no particular definition used in recognising whether an act, event, or circumstance is a Force Majeure event. Particularly, in the US, there is not a single standard under federal or state laws used as proof that an event is a Force Majeure. For this reason, as noted in the interpretation of the Force Majeure clause in England, the US also uses courts, which evaluate the language used in the cause between parties. When a party to a contract sues another party for failure of performance, citing Force Majeure, the courts evaluate the context of the claim. As such, they decide whether the cited Force Majeure event has occurred hence determining whether the party should be exempted from performance. In this case, the party that invokes the Force Majeure clause has the burden of proof demonstrating why the clause should be applied.

In the US, much of the application of the Force Majeure clause is similar to English common law because the courts are responsible for determining whether Force Majeure occurred based on the language used in the contract. Regarding Covid-19, the courts are expected to make different determinations because they will be based on the language of the clauses. The critical consideration will be determining whether Covid-19, a pandemic, is considered for inclusion or exclusion under events noted as Force Majeure. Notably, different jurisdictions in the states adopt different standards in defining Force Majeure and exemption from performance. For instance, in New York, the courts have adopted a narrow definition of the clause granting exemption from performance only when the stipulated event in the clause happens. For this reason, parties’ responsibility to a contract can narrow or broaden the terms and conditions of performance in the clause.

III. India

In India, Force Majeure is not specifically defined or dealt with under the Indian statutes but cites Section 32 of the Indian Contract Law Act of 1872. The Act outlines that if the performance of a contract is contingent on an event that becomes untenable, such a contract is deemed void. From a contractual aspect, Force Majeure offers a reprieve to a party suspending the performance of contractual obligation when the events considered in the clause occur. Similar to the case of England and the US, India depends on the language used in the clause in spelling out the specific event or circumstances that can be considered as Force Majeure.

Unlike England and the US, however, India applies Section 56 of the Indian Contract Law Act when the parties do not have a Force Majeure clause. The Act is always applied when parties fail to agree concerning contractual obligation non-performance due to an act that renders performance impossible. The jurisprudence concerning Force Majeure in India was summarised in the case Energy Watchdog v. Central Electricity Regulatory. Notably, it was held that the doctrine of frustration could not be applied in cases where critical aspects of the contract are unaltered, and Section 56 can have no application as the contract contained a Force Majeure. Furthermore, the courts relied on Taylor v Caldwell in the England common law. However, this case is perceived as rigid for requiring specific performance even when the performance was rendered impossible. Notably, the impossibility of performance considered under Section 56 does not include impossibilities arising from economic hardships and factors within the parties’ control. The Act considers supervening events beyond the control and contemplation of the parties, and the occurrence destroys the foundation to facilitate the performance of the contract. As a result, the performance of the contract is rendered impracticable.

In India, M/s Halliburton Offshore Services Inc. v Vedanta Limited & Anr was among the top cases that recognised Covid-19 as a Force Majeure event. However, the case noted that it was critical to determine whether it would result in non-performance or breach of contract justification. The Court noted that it was critical for the Court to assess the parties’ conduct before the outbreak to establish the genuineness of each case.

Civil Law Jurisdictions

I. United Arab Emirates (UAE Force Majeure Law)

The UAE Force Majeure law recognises Force Majeure under the UAE Civil Code (Federal Law No. 8 of 1985) but does not have a specific prescription under the UAE law concerning what it encompasses. The Civil Code only provides a few provisions that enhance issues emerging from Force Majeure and its consequences. Since UAE does not have a unified approach or law that defines how to deal with Force Majeure, businesses are required to be keen while drafting Force Majeure clauses. Further, they should consider the governing laws and the mandatory governmental interventions applicable. Notably, the UAE distinguishes what constitutes Force Majeure events from other events within the party’s control that might render performance onerous. Article 273(1) of the UAE Civil Code allows for total performance exemption for a party when the performance of the contractual obligation is rendered impossible. The parties return to their pre-contractual positions, and such contracts are considered cancelled. However, continuous contracts are treated differently because part of the contract performed by the party before the Force Majeure remains enforceable. This is allowed under Article 273(2), where only the part affected by the Force Majeure event is exempted from performance, but the remaining part of the contract remains enforceable. Although Force Majeure is majorly used to seek termination, it is also used as a defence from liability as articulated in Article 287 of the UAE Civil Code. The article asserts that if a party can prove the loss was caused by an extraneous factor beyond their contemplation or control, they shall be exempted from performance even without a legal provision in the contract. The same is reflected under Article 472 of the UAE Civil Code, which exempts parties from performance caused by an extraneous factor beyond their control.

In the UAE, a litigant could rely not only on the Covid-19 pandemic as a basis for non-performance or the cancellation of a contract. It has been held that the claimant party must demonstrate that the pandemic is the sole cause of non-performance. Additionally, the party must demonstrate that the impacts of the pandemic could not be avoided and all preventive measures were adopted. For the Force Majeure claim to be granted based on Covid-19, the parties are required to explain and demonstrate how the pandemic has rendered the contract impossible. It was also noted that such impossibility might be considered partial, temporal or total, depending on the circumstance and the nature of the contract.

II. China

Under the Chinese law in Civil Law’s General Principles and Contract Law for the People’s Republic of China and Contract Law, Force Majeure is defined as:

“Unforeseeable, unavoidable and insurmountable objective events.”

From this provision, Chinese courts can determine whether an event can be considered a Force Majeure, which has the same legal implication as any regulation or rule. For instance, in 2003, after the Severe Acute Respiratory Syndrome (SARS) outbreak, China’s Supreme Court provided a judicial interpretation determining if the SARS outbreak inhibited a contract’s performance or if other administrative measures were taken to combat the epidemic, the event would be considered a Force Majeure.

The Supreme Court also offered guidance and directives concerning Covid-19 and how the lower courts would apply the Force Majeure for contracts affected by Covid-19 across the People’s Republic of China. Primarily, the Supreme Court required the lower courts to apply Article 180 of the General Principles and Article 117 and 118 of the contract law unless in cases where other laws are applicable. The non-specific guideline was considered because Covid-19 impacted different regions, industries and cases differently. For this reason, the lower courts were required to analyse each case based on interventions adopted and how they related to the non-performance of contractual obligations. From this assertion, a one-size-fit approach was not applicable.

III. Germany

Force Majeure events are not regulated directly under German statutory law in Germany. Force Majeure Events are considered under Section 275 of the Bürgerliches Gesetzbuch (BGB) (German Civil Code), the statutory provision concerning the impossibility of contractual obligation performance. Section 313 of the German Civil Code deals with cases involving events that interfere with the basis of the contract. Section 275 German Civil Code exempts a party from performance when the promisor is faced with the event considered. The statutory provision can also exempt the promisor from performance when the contractual obligation demands unreasonable effort and expense. However, the statutory provision requires the parties to return performance elements such as deposits. The party might be ordered to perform the specific obligation where it cannot be returned. Notably, the provision notes that the party cannot claim damages if a Force Majeure event causes a delay. In this case, the party invoking the Force Majeure relief should demonstrate that all reasonable and necessary steps to avoid the impact of the Force Majeure event were adopted.

Notably, German law strictly regulates standard contracts, and the restrictions concerning the standardisation of contracts apply to all contracts

. The standards invalidate all clauses considered as having undue or unreasonable advantages. The consideration of unreasonableness is considered under the core principles of statutory provisions. It is observed that even when there is case law regarding the context of a case, it is quite unpredictable to determine which terms in the clause will be considered invalid in a German court. For instance, clauses that extend the scope of Force Majeure to additional events within the control of the party, giving a party the right to terminate the contract, might be considered invalid because they violate the binding impact of a contract.

Conditions Considered for Exemption for Non-performance

Common Law Jurisdictions

I. England

Under English law, parties in a contract are expected to do something as stipulated, even when the conditions arising from the subsequent events make performance by a party onerous, expensive or challenging. The exemption to this condition is called frustration, and there are various conditions for its applicability. For instance, frustration is considered for events that occur only after parties agree. Further, it is only applied when the considered Force Majeure event renders performance impossible due to illegality, impossibility and radical emergence of something significantly different from what initially envisioned. A contract becoming enormous or more expensive than initially envisioned is not sufficient ground to invoke frustration. The doctrine is not considered when the event or the issue relied on upon invoking the Force Majeure comes because of the fault of the party to the contract. Further, it is not considered when the risk is impliedly or expressly allocated in the contract terms. Applying the doctrine implies that the contractual obligation is discharged, and any future performance is cancelled.

Based on the narrow nature of applying the doctrine of frustration, it was critical for parties unable to perform their contractual obligation because of Covid-19 to consider whether the terms in their contracts had implied or expressed Force Majeure clauses that offered them protection. In this consideration, such parties would have to list the events considered as Force Majeure. Further, the party should determine and explain the consequences of the Force Majeure events, which includes consideration of payments made or services or products delivered before the Force Majeure event. Before invoking the Force Majeure clause, parties must first consider whether Covid-19 was expressly or impliedly considered under the events listed in the clause. The case of Salam Air SAOC v. Latam Airlines Groups SA is good to demonstrate the narrow nature of applying the doctrine of frustration under English law. In this case, the claimant was seeking an injunction that would prevent the defendant from making demands concerning the underlying leases of three aircraft. The claimant argued that the contract was frustrated by the Covid-19 regulations issued by the Public Authority of Civil Aviation in Oman, resulting in a significant drop in demand. However, the Court held that although Covid-19 has made it challenging for the travel industry, it could not hold as a sufficient basis for frustration because it was not preventing either party from undertaking their contractual obligations. A similar outcome was reported in Wilmington Trust SP Services (Dublin) Ltd v. Spicejet Ltd.

II. United States

As noted, in the US, no statutory standards guide the conduct or outcome of contractual disputes arising from Force Majeure events. However, the courts are guided by the clauses that parties include in their contracts to determine arising disputes. Applying the Force Majeure provision is perceived as contract-specific, and the Court has placed high standards of granting exemption from performance. When determining the applicability of the Force Majeure provision in a contract, the Court adopts a criterion that first seeks to establish the event under consideration qualifies as a Force Majeure as specified in the contract. Further, the Court must establish whether the Force Majeure event was predictable and whether it could be mitigated. The invocation of the clause also demands proof that performance is impracticable and impossible because of the Force Majeure event.

The invocation of Covid-19 as a Force Majeure event drew numerous opinions, and different jurisdictions adopted different standards, where each case was handled uniquely based on the contract’s language. For instance, in Zhao v. CIEE, Inc., the Court relied on the terms of the contract in deciding. In this case, the international student had engaged in a foreign study program, which was interrupted by Covid-19, and the contract had a broad provision for a refund in case the program was cancelled. Further, the contract included a waiver from liability on the condition that the company would not be liable for damages and losses arising inter alia from the ‘pandemic.’ The Court held that the student could not be refunded for the program’s cancellation because the pandemic was a foreseen event and was allocated in the contract provisions in the Force Majeure clause.

III. India

Like other countries under the common law (the UK and the US), India does not have statutory provisions that guide handling Force Majeure events. This is unlike countries guided by civil law like UAE, China, and Germany, which have statutory provisions guiding contract frustration by a Force Majeure event. However, India has a provision that guides the doctrine of frustration in cases where parties did not have the Force Majeure clause in their contract. Section 56 of the Indian Contract Act is often used in frustration, stipulating that when an unforeseen event arises and parties cannot fulfil their contractual obligation, they can be exempted from specific performance. If a contract included a Force Majeure clause, the courts in India have usually given a wide interpretation of the term, as seen in the seminal case of Dhanrajamal Gobindram v. Shamji Kalidas and Co. The Supreme Court of India had observed that the intention to invoke the Force Majeure clause is that the performing party would be protected from the consequences of “anything which has no control over.”

The courts also use a criterion in defining the circumstance under which the doctrine of frustration can be considered. The first is the consideration of whether the event was foreseeable at the point when the parties engaged in the contract. This consideration is made because it is assumed that if the event was contemplatable and foreseeable, the parties engaged in the contract knowingly, and such contracts are enforceable. Further, the frustration arising from the Force Majeure event must be substantial. The third criterion is that the non-occurrence of the Force Majeure event must have been a basic assumption when the contract is made. Satyabrata Ghose v. Mugneeram Bangur & Co is a major precedent used in India. In this case, it was held that the doctrine of frustration is only applied and the relief granted only due to subsequent impossibility caused by an unexpected event.

In reference to the above, the crucial question considered by the Courts is whether Covid-19 would constitute an event that could trigger a force majeure. The courts have adopted the approach of a careful case-by-case analysis of the wording in each contract, especially the Force Majeure clause. Furthermore, the relief mechanism stipulated in the particular contract (or any ancillary documentation signed in furtherance to the contract) would need to be followed, which includes but is not limited to, Force Majeure and frustration, events of default, material adverse effect, suspension of performance/termination, and payment and guarantee terms. If there is no specific Force Majeure clause drawn in the contract, then the terms of the contract would need to be examined and further read with provisions of Section 56 of the Act.

Civil Law Jurisdictions

I. United Arab Emirates

Court judgments guide consideration for exemption for non-performance in the UAE. The courts have consistently ruled that except for a mere obligation for payment, the exemption for non-performance can only be considered in cases where the party’s proof that an event beyond its control caused it. The party must also demonstrate that it could not reasonably expect the event’s occurrence to inhibit performance and that they had taken all necessary mitigation to ensure performance. For instance, in Abu Dhabi Court of Cassation Judgment 835 of 2021, a contractor invoked the Force Majeure clause, citing the lockdown and suspension of business activities because of Covid-19, particularly in China, where the company sourced its building materials. In its ruling, the Court held that the party did not demonstrate or provide proof that the building materials and equipment were sourced from China. Further, the Court noted that the contractor had delivered partially on the project. In its determination, it noted that the impact of Covid should not only make the performance onerous but also make it impossible for frustration doctrine to be considered.

Legal experts were unsure of whether Covid-19 would be treated as the main event or the subsequent interventions that led to the failure of the chain of causation. For instance, there are various questions deemed relevant for consideration under Article 82(1). The first question considered was determining whether the impact of Covid-19 caused the failure to deliver. Further, the courts must determine whether the company reasonably assumes non-performance risk under all circumstances. Further consideration will be made on whether there are mitigative actions that the company can deploy to ensure performance. For example, in Judgment 479 of 2021, the Dubai Court of Cassation ruled that a Force Majeure is an event that supervenes a party’s ability to make the performance of the contractual obligation set in the contract impossible. In the case, the Court noted that the defendant had initially issued a postponement and extension to deliver before Covid-19 was not the factor that caused the project to stall. For this reason, the disruption prompted by the pandemic would not be solely used in excusing performance. The Court further considers whether the impacts could be avoided, and the party must also demonstrate how the pandemic has made the delivery of the contract an impossibility. Considering the facts in each case, it has been established that the Court might consider partial, temporal, or total exemption from performance.

II. China

Although the People’s Republic of China (PRC) Laws are codified, businesses must understand the relevant statutory provisions concerning Force Majeure and how the Supreme People’s Court interprets such provisions. Under PRC law, Force Majeure is considered in Article 180 of the General Provisions of Civil Law, Articles 107 and 153 of the General Provisions of the PRC, and Articles 94, 96, and 117-118 of PRC Contract Law. Frustration is particularly considered under Article 94(1), which presumes that a party can terminate a contract when performance is impossible because of a Force Majeure event. Further, Article 96 provides a guideline that the party seeking to terminate the contract as per Article 94 should notify the other party. The contract is considered terminated when the notification reaches the other party. However, if the party disagrees with the termination, it can seek validity of the grounds for termination from the Arbitral Tribunal or the Court. Under Article 117, it is considered that if a party delays performance before the occurrence of Force Majeure, the exemption cannot be applied.

The provisions under Article 118 provide that the party unable to perform the contract because of Force Majeure should ensure prompt notification of the other party to reduce further damages caused by non-performance. Notably, it is critical to consider Article 26 of the PRC Contract Law Supreme People’s Court Interpretation No (II). Unlike in Common Law jurisdictions, in case of dispute between parties, the People’s Court can modify or terminate a contract based on the fairness principle based on the circumstances provided for the cases. Such modification can consider a significant unforeseeable change in circumstances after the parties establish the contract, even when the Force Majeure event does not cause such circumstances. The People’s Court considers whether the continued performance of the contractual obligation is unfair and the party might fail to achieve the contract’s purpose.

III. Germany

Frustration under German Statutory Law is considered when a party finds it impossible to deliver on its contractual obligation, relieving a party of the obligation to perform because of a Force Majeure event. The provisions in the statutory also consider temporal disruptions that might cause a party to be unable to deliver on its contractual obligation. Further, the law considers cases where in principle, a party can deliver its contractual obligations, but only through grossly disproportionate effort and expenses. Based on the provision, the party can apply to be relieved from performance. In this consideration, such a party might not be relieved from all contractual obligations but exempt from disproportionate efforts and expenses. Such parties have a burden of proof to demonstrate why they should be granted such exemptions. For instance, the party must demonstrate that delivering the contractual obligation in time might result in grossly disproportionate costs because of the circumstances caused by the Force Majeure event. The party must also demonstrate that they did not have any responsibility or were previously delayed in delivery. Lastly, the party must demonstrate proof that all reasonable efforts to facilitate performance were taken, but still frustrating performance.

From the onset of the Covid-19 pandemic, there were questions regarding whether it constituted a Force Majeure or the measures taken to combat its spread. In Germany, the first determination was made by a Paderborn Regional Court [2020], where a student claimed a refund of EUR 10,000 deposit made by the class to organise a student ball. However, the event failed because of Covid-19. The Court noted terms in the Force Majeure based on this clause, and the Paderborn Regional Court ordered the agency to refund the deposits that had been made, which meant that it expressly recognised the Covid-19 pandemic as a Force Majeure event. In the determination, the Court noted that it was practically impossible for the parties to find an alternative date for the parties to hold the event because the measures taken by North Rhine-Westphalia would not allow such events within a reasonable time.

The Impact of Contract Non-Performance Prompted by Force Majeure COVID-19

Common Law Jurisdictions

I. England

An overview of Force Majeure and the factors considered for a doctrine of frustration to be considered lays the foundation for determining the impact of invoking the clause. Under English law, the impact of invoking the clause primarily depends on the terms of the Force Majeure clause in the contract. For instance, the terms of the clause may require the buyer to suspend, deliver partially or delay performance. The impact of invoking the Force Majeure clause demand parties to consider what is covered under the Force Majeure clause. As outlined, this factor makes drafting the Force Majeure clause critical because there are no statutory provisions under English law that determine the parties’ obligations. For instance, in commodity contracts, the parties include ‘Take or Pay’ clauses that demand payment for the cargo even when the cargo is no longer wanted. Such a clause unfavourably allocates the risk to the buyer pre-empting the Force Majeure clause. For this reason, the buyers must assess and consider the contract terms such that the purchase quantities are varied, or the cargo can be diverted from the default port to the unimpeded ones.

When the claim of frustration is successful, the parties are discharged automatically from performance, but all obligations incurred before the contract discharge is deemed active. The ability of a party to recover deposits paid before the frustrating events depend on the Law Reform (Frustrated Contracts) Act 1943 (LRA). However, if the LRA is not applicable in such contracts, the parties rely on common law rules that assert that any payments made are only recoverable in case of total failure. For this reason, the parties cannot recover any deposits paid when failure is partial. The LRA rules assert that any money paid before the frustrating event is irrecoverable, but all money due before the frustrating event but not yet paid ceases to be payable. The LRA also states that a party that incurred expenses is allowed to retain a certain proportion of any deposits made before the frustrating event to the extent of the value of expenses incurred. LRA further offers an allowance for the Court to require a party that benefited from the contract before the frustrating event to pay a just sum to the other party.

II. United States

Amid Covid-19, some contractual parties experienced significantly challenging situations that rendered them unable to fulfil their contractual obligation. The US is guided by common law, where the Force Majeure clause is presumed to be a creature of contract, and there are no statutory provisions. Many companies sought relief from performance, citing Force Majeure after Covid-19, only to find their contracts lacking such clauses. However, even in cases where the contracting parties had not included the Force Majeure in their contracts, they can still apply for relief from performance under the common law doctrine of impossibility and impracticability based on their jurisdictions. The consequence of granting exemption from performance is based on the Force Majeure clauses included in the contract. In the US, the consequence of invoking a Force Majeure clause is determined by the terms parties had specified in the contract.

An example of such a case is JN Contemporary Art LLC v. Phillips Auctioneers LLC, in New York Southern District Court. The Court was responsible for determining whether parties intended to include pandemics when allocating risk events in the Force Majeure clause. The Court noted the open-ended clause that specified a Force Majeure event as “circumstances beyond our or your reasonable control.” Although it also had a long list of the events considered, the Court presumed the catch-all statement made the pandemic considered a natural disaster. Further, in this case, an auction house had agreed to auction a painting in an event scheduled in May 2020. The Force Majeure clause stated:

“we may terminate this Agreement with immediate effect. In such event, our obligation to make payment of the Guaranteed Minimum shall be null and void, and we shall have no other liability to you.”

After Covid-19, the auction was postponed, and the auction house invoked the Force Majeure clause to terminate the contract. The painting owner pushed to have the auction house auction the painting in online auctions. However, based on the clause, the Court dismissed the motion citing that the Force Majeure clause protected the auction house. The clause was one-sided, but the painting owner had not paid attention.

III. India

Indian courts rely on the doctrine of frustration under common law and Section 56 of the Indian Contract Act in granting exemption from performance. For this reason, the Force Majeure clause is a primary determinant of the consequence when a party invokes the clause for exemption from non-performance. In India, Standard Retail Pvt. Ltd. v. M/s. G. S. Global Corp & Ors was among the recent cases that made a major determination dismissing an Arbitration petition. The petitioners cited lockdown as a Force Majeure event that prevented the performance of their contractual obligation. However, the Court held that lockdown was a temporal event, limited to a limited period, and they termed it a bad excuse for exemption of performance. The petition relied on Section 9 of the Indian Arbitration and Conciliation Act and sought to restrain the respondent from enchasing the letters of credit. The petitioner sought to consider the contract unenforceable under Section 56 of the Indian Contract Law. In this case, respondent one was a supplier of steel products from South Korea, which were dispatched and delivered to the petitioner.

The Court noted that the Force Majeure was only applicable to respondent one, not the petitioner, which meant that the petitioner did not have a legal right to invoke the clause. Further, the contract terms were based on cost and freight, and the first respondent fulfilled the contractual obligation by shipping the steel products from South Korea. However, the petitioner could not fulfil the obligation of paying for the products. The precedence made in the determination of this case was critical because the Court seized the opportunity to correct what was considered a wrong standard of invoking the Force Majeure clause. By noting lockdown as a temporary event, it could not be used by the petitioner as a basis for failure of performance. Bombay High Court also relied on the determination made by the Supreme Court in Energy Watchdog v. Central Electricity Regulatory Commission. In this case, the Court held that for the clause to be considered, it must be objectively impossible and uneconomical to perform the outlined contractual obligations. Further, it was also held that only the events expressly listed in the contract could be used as to excuse for performance.

Civil Law Jurisdictions

I. United Arab Emirates

In the UAE and across various other jurisdictions guided by civil and common law, it is evident that parties might not solely rely on disruptions caused by Covid-19 in granting exemption from performance. Numerous factors determine the consequence of granting the exemption, and it does not adopt a one-size-fit approach. The Court relies on the Force Majeure clause and other statutory provisions in disputed cases. The UAE Civil Code offers a few provisions that address the consequences of Force Majeure. The code presumes that Force Majeure clauses should be interpreted like any other clause, and the Court should take the plain and simple meaning of the wording. If that is not applicable, the Court seeks to understand the parties’ intent when drafting the clause.

Under Article 273(1) of the UAE Civil Code, if the Force Majeure supervenes, making the performance of contractual obligation an impossibility, the obligation of the parties will cease. For this reason, if the Force Majeure event makes the performance of the contract an impossibility, the parties will no longer have an obligation to, and the contract will be deemed cancelled. In this scenario, parties return to their pre-contractual positions, and potential damages can be awarded. In the case of a continuous contract, the completed part of the contract remains enforceable. The partial termination is considered under Article 273(2). Notably, parties should note that the UAE law imposes the duty of contract performance in good faith, without express intention of mitigating. Further, parties must refrain from compounding losses, and each party should make reasonable efforts to prevent loss.

II. China

In China, the consequences of a Force Majeure defense are stipulated under Articles 117 and 118 of the PRC Contract Law. The People’s Supreme Court also issued guidance regarding the hearing of civil matters concerning Covid-19. The guideline noted that when Covid-19 rendered the performance of a contract impossible and a party uses Covid-19 as a defense, the party can partially or wholly be exempted from liabilities. Further, it was noted that if the parties find it challenging and not completely impossible to perform their contractual obligation, they can apply the law of material change. This guideline was issued to encourage parties to continue performance. For instance, if a contractor fails to deliver the construction within the contract’s agreed time, or the labor or material costs increase because of Covid-19, making the continued performance unfair, the Court can extend the time or the price in light of the specific issues in such a case.

When the parties found performance challenging, the Court encouraged renegotiating terms to enhance performance continuation. For instance, the Court gave an example of the increased cost of performance because of increased logistics, materials, or in cases where the price of a product increased significantly. Suppose such circumstances render the performance of the contract unfair to the claiming party. In that case, the Court can adjust the pricing at the request of the affected party, pursuant to the principle of fairness based on the specific conditions of the case. Total exemption from performance would only be considered where the epidemic or the combative control measures cause frustration of purpose, deeming it impossible. For instance, for a contract involving a temporal lease for a specific purpose such as an exhibition, trade fairs and meetings were cancelled because of Covid-19 and the adopted control measures. The Court will hold and consider the lessee’s request for rescission of the contract, and the deposits paid should be refunded.

III. Germany

The impact of contract non-performance because of a Force Majeure event is guided by German statutory law. If performance is rendered impossible because of the impacts of Covid-19, the provisions would be deployed. Based on the doctrine of impossibility, a party can be exempted from performance, and the same applies if the impact results in disproportionate expenses and efforts. Further, there were numerous cases of suppliers who relied on other suppliers to deliver the contractual obligation promptly. If the supplier cannot deliver because their supplier failed, they can withdraw from the contract, but they must pay the consideration. The German Civil Code Section 308(8) outlines the formal requirements in business-to-consumer contracts.

The consequence of non-performance can also be outlined under the Force Majeure clause, where the party can suspend, withhold or terminate performance based on the specific terms of the clause. Section 275 Paragraph 1 of the German Civil Code exempts performance to the extent of impossibility. Under the provisions, the party affected by performance is not presumed solely responsible. The respondent party cannot claim damages in a case where the party’s ability to perform is impaired because of government measures. The provision should only be applied for the impossible part if performance is partially possible.

Comparative and Summative Analysis: Force Majeure Common Law vs Civil Law Jurisdictions

Before Covid-19, the Force Majeure clause risked being dismissed as an essential consideration by parties when drafting contracts. The narrow approach adopted in its consideration created a perception that potential catastrophes are primarily unlikely to happen. The entry of Force Majeure COVID-19 changed this perception, with governments across the globe adopting numerous combative measures that wreaked havoc on the ability of parties to commercial contracts and agreements and found it challenging to deliver their contractual obligations. As a result, the disruption of business activities resulted in global litigations, causing parties to invoke Force Majeure as a defence. Numerous case laws offer cautionary lessons regarding the applicability of the clause. Under different jurisdictions, in either common law or civil law, Force Majeure clause offers relief when a party is faced with a risk that prevents performance because of a Force Majeure event.

Based on the sources of law, different countries apply varying weights to different sources of law, while others emphasize the use of judicial precedencies more than others. As noted in the analysis of Force Majeure contract law, countries guided by common law do not have codified Force Majeure clauses. For this reason, as noted in the case of England, the US, and India in this case study, most reliance on decisions made in courts is determined by binding judicial decisions. In such jurisdictions, contracting parties have a lot of freedom when formulating contracts because there are few restrictive provisions. The Force Majeure doctrine in common law is a creature in a contract with no legal provisions. In England, the US, and India, the doctrine’s contours are majorly determined by judicial precedent. The applicability is determined by whether the parties had allocated impossibility, impracticability, and frustration caused by the Force Majeure event. Across different common law jurisdictions, the applicability of the clause is perceived to take a narrow approach, especially under English law. Similarly, different jurisdictions in the US adopt different standards of strictness in granting a party’s exemption from performance.

The freedom of contracting parties has elicited concerns for parties to be cautious of the language used when drafting Force Majeure clauses in the contract. It is presumed that contracts drafted under common law are long because a few implied provisions demand parties to outline all the terms that govern their relationship. When parties seek to cater to risks that might arise affecting the ability of either party to deliver, they must provide express terms in the contract. When parties fail to make such allocations, they have limited opportunities to attain legal reprieve when a party cannot deliver on its contractual obligations caused by the Force Majeure event. However, the doctrine of frustration is an exception to this rule, and it relieves the parties of their contractual obligations when the contract is “frustrated” by the Force Majeure event. For contractual parties guided by common law, it is critical to consider including a well-drafted Force Majeure clause in the contract as a guard from events beyond parties’ control. Notably, such a contract should define the events considered and the scope. Parties can also include an exhaustive definition listing all the events under the clause. The parties should also be cautious in including general points and operative provisions by investigating how other cases have been determined. Statutory provisions guide civil law jurisdictions, but judicial decisions are always critical in interpreting the doctrine. The application of such precedents varies from one country to the other. For instance, it was noted that it is quite unpredictable in Germany to determine a Court’s determination even when there is judicial precedence.

In 2021 and 2022, parties in litigation seeking relief from performance using Covid-19 experienced increased scepticism, arguing the pandemic was an unforeseeable event. The trend is expected to continue beyond 2022, and it will increasingly become challenging for parties to defend the non-performance using pandemic-related causes. At the onset of Covid-19, it was easier for parties to cite Covid-19 as a defence against it. As a result, contracts beyond 2022 going forward might be construed more tightly. Additionally, there have been numerous incidents where it was argued that although the pandemic was not foreseeable, the shutdowns and the resulting financial fluctuations were foreseeable, and they were the primary cause of non-performance. For this reason, courts are expected to continually focus on the real causation for non-performance, which is perceived mainly as foreseeable. Parties seeking to make claims and use Covid-19 as a defence must consider the recent determinations to avoid engaging in a costly effort in futility. Notably, various civil law jurisdictions have demonstrated a slightly greater degree of flexibility in characterising Covid-19 as a Force Majeure event. However, it is still a challenge to determine whether the pandemic should be classified as a Force Majeure, particularly due to the increasing perception that the outcome of Covid-19 was predictable. Across different jurisdictions, this issue is being determined on a case-to-case basis. The courts are taking a cautious approach to protect contracts and the lawful responsibility of parties to fulfil contractual obligations.

Conclusion and Recommendations

Recommendations

Determining cases concerning the invocation of Force Majeure COVID-19 has elicited innumerable implications that will change how parties draft their contracts. Initially, people were less attentive to the language used in different clauses, especially Force Majeure, in light of Covid-19. The narrow approach adopted in exempting parties from performance requires corporations and people with disputes to seek alternative flexible approaches to dealing with the emerging crisis. For instance, parties can renegotiate the Force Majeure clause in particular. Further, the emerging crisis will ensure that parties contracting post-Covid-19 take sufficient consideration, especially considering that they are expected to allocate for associated risks.

One of the major considerations that parties should consider when drafting contracts is anticipation and specification of the events considered Force Majeure. Previously, parties generally stated natural disasters, and some further included list of examples of the events considered. However, with the narrow interpretation of Force Majeure clauses and the emerging circumstances, parties must consider events that can impede the performance of contractual obligations. Therefore, including a catch-all phrase should be done carefully using the right language, and parties should consider reviewing previous interpretations to ensure they cover the specific emerging risks. By evaluating the pros and cons of including broad, generic catch-all language after the enumeration of specific events, the drafter can expand the application of the Force Majeure clause. To mitigate the unpredictability that may arise due to the wide interpretation of a catch-all phrase, drafters may want to carefully consider the relevant state laws to anticipate the interpretation of the clause in a dispute. This will increase the likelihood of the parties’ choices being honoured by the Court or arbitrator.

When drafting contracts, it is also critical for parties to review restrictive language critically. For example, the term ‘impossible’ is used, but from a legal perspective, it always requires a high threshold for parties to prove the impossibility. For better contract flexibility, parties can include additional terms such as inadvisable, illegal, and impracticable. In addition, the language used in drafting the clause majorly influences the scope of the Force Majeure clause. For instance, when a party adds words such as “or any other emergency beyond the party’s control“, it narrows the scope of the events considered to only emergencies. For this reason, any non-emergency situation is not covered under the clause.

A drafter may want to consider being as succinct and explicit as possible when setting forth the relief to which a party is entitled. In complex contracts, it may be reasonable to provide alternative forms of relief depending on the force majeure event that impacts performance. However, simplicity and clarity may help avoid disputes over the available relief. Generally, an impacted party is excused from further performance or granted an extension equivalent to the period of delay due to the Force Majeure event. While it is rare, a party may also be entitled to additional compensation for the increased costs due to the force majeure event. The drafter may also consider whether the Force Majeure provision should include requirements for parties to mitigate the effect of the Force Majeure event to the best of their capabilities, or else the relief may be withheld if the parties failed to uphold their responsibilities to mitigate the effect.

In light of these recommendations, it is acknowledged that a carefully negotiated Force Majeure clause is a critical tool that parties can use to reduce liability owing to non-performance or underperformance as a result of the Force Majeure events.

Conclusion

The Force Majeure clause was majorly unpopular before Covid-19, particularly due to the narrow approach adopted by the Courts in granting exemption from performance. As discussed, the clause offers a provision that exempts parties from performing their contractual obligation when events considered Force Majeure happen. The parties are relieved when performance becomes inadvisable, illegal, impossible, and impracticable because of the Force Majeure event. Notably, many companies faced unprecedented challenges, and on seeking to invoke the Force Majeure clause, they found them lacking or inefficient. This challenge is more pronounced in common law jurisdictions that do not have statutory provisions, and parties are forced to seek other legal redresses. Across all civil and common law jurisdictions, as demonstrated in the countries considered in this case study, the legal system majorly focuses on facilitating performance. Therefore, parties operating in countries based on common law should be more cautious to ensure that they include Force Majeure clauses in their contracts because they lack statutory provisions.

Based on the common and civil law case laws, there are substantial obstacles concerning how parties seek to prove impossibility, frustration, and impracticability. This factor calls for parties to consider the Force Majeure clause used in commercial contracts. Adopting a Force Majeure clause in a contract allows rationality in making the terms and parties have equal bargaining power, considering the details and facts about the contract. Including the clause in the contract allows parties to establish a resolution that meets their objectives. Based on the disputes recorded particularly from Covid-19, there is much to do, particularly in commercial leases with one-sided Force Majeure clauses. Such clauses have resulted in unequal outcomes, and the interpretations of commercial contracts from such cases are expected to majorly affect commercial contracts and transactions. The outcome is also expected to revolutionise considerations made by parties while drafting commercial contracts. Most clauses will have to include pandemics as a Force Majeure event, which was previously rarely considered, and parties have instead sought the Court’s intervention in determining whether Covid-19 was a Force Majeure event. The proliferation of Force Majeure is to be expected in the contemporary world of contracts and jurisprudence. With the advent of the pandemic, drafters have learnt a valuable lesson in constructing effective Force Majeure clauses in order to afford better protection for the contracting parties.

For tailored advice and support navigating Force Majeure COVID-19 contract disputes and drafting effective Force Majeure clauses under common law or civil law jurisdictions, consulting with an experienced law firm in UAE like Economic Law Partners ensures you manage contractual obligations efficiently and avoid costly litigation.

Primary Sources

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England & Wales

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[2] Salam Air SAOC v. Latam Airlines Group SA, [2020] EWHC 2414 (Comm).

[3] Taylor v. Caldwell, [1863] EWHC QB J1.

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Germany

[5] LG Paderborn, Urteil vom 25.09.2020 – 3 O 261/20.

India

[6] Dhanrajamal Gobindram v. Shamji Kalidas & Co., MANU/SC/0362/1961.

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United Arab Emirates

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[13] Dubai Court of Cassation, Judgment No. 479 of 2021.

United States

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China

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England & Wales

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[25] Unfair Contract Terms Act 1977.

Germany

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India

[27] Indian Arbitration and Conciliation Act, 1996.

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United Arab Emirates

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Contribution to Edited Book

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Journal Articles

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[49] A. D. McNair, “The Law Reform (Frustrated Contracts) Act, 1943,” Law Quarterly Review, vol. 60, p. 160, 1944.

[50] A. Sahni, “Invoking force majeure and frustration in India,” International Journal of Legal Information, vol. 48, p. 132, 2020.

[51] B. Sharar, “Comparing unilateral modification during COVID-19,” Liverpool Law Review, vol. 42, no. 3, pp. 465–483, 2021.

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[53] B. Olson, “Force majeure in China,” Columbia Journal of Asian Law, vol. 33, no. 2, pp. 295–314, 2020.

[54] C. N. Nwedu, “The rise of force majeure,” Natural Resources Journal, vol. 61, no. 1, pp. 1–18, 2021.

[55] C. X. Lindsey, “Invoking force majeure,” Journal of International Banking and Financial Law, vol. 3, p. 160, 2020.

[56] D. Olatoye, “Law in a time of corona,” University of Bologna Law Review, vol. 6, no. 2, pp. 171–238, 2021.

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[60] H. Kandou and A. Tehupeiory, “Force majeure in consumer financing,” International Journal of Law, vol. 7, no. 4, pp. 163–172, 2021.

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[62] I. Vorotyntseva et al., “Comparative legal research during COVID-19,” Revista de Derecho, vol. 10, no. 1, pp. 123–150, 2021.

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[67] L. E. Perriello, “Terminating or renegotiating,” Comparative Law Review, vol. 11, no. 2, pp. 73–104, 2011.

[68] M. Katsivela, “Force majeure concept or clause,” Uniform Law Review, vol. 12, no. 1, p. 101, 2007.

[69] M. Douglas and J. Eldridge, “Coronavirus and obligations,” UNSW Law Journal Forum, vol. 3, pp. 1–11, 2020.

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[71] N. Yas, “Effects of COVID-19 on contracts,” Journal of Legal Studies Education, vol. 24, no. 3, pp. 1–9, 2021.

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[76] S. Khanderia, “Transnational contracts during COVID-19,” BRICS Law Journal, vol. 8, no. 3, pp. 52–80, 2020.

[77] S. Hansen, “COVID-19 as force majeure,” Journal of Civil Engineering Forum, vol. 6, no. 2, pp. 201–214, 2020.

[78] S. Jayabalan, “Doctrine of frustration during COVID-19,” Sociological Jurisprudence Journal, vol. 3, no. 2, pp. 84–90, 2020.

[79] S. Li et al., “Force majeure in sports contracts,” International Sports Law Journal, pp. 1–12, 2022.

[80] S. Madaus and F. J. Arias, “Emergency COVID-19 legislation,” European Company and Financial Law Review, vol. 17, no. 3, pp. 318–352, 2020.

Online Sources / Websites

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[95] Y. Sarvaria and M. Chopra, “India: force majeure Q&A,” Mondaq, Jul. 6, 2020.

[96] Y. (Sunny) Yang, “SPC guidance on force majeure,” Porter Wright, Jun. 1, 2020.