Terminate a contract due to COVID. If you are interested in finding out how to
terminate a contract due to COVID because your business can no longer
perform your obligations under that contract. Then stick around. So the first
thing you need to do is find your contract. Then do a ‘control F’ for a
Search for the word "force" that's the first thing to do. Once you come up to
the relevant clause hopefully there's one in there like this one you need to
examine what the clause says. Now this part this Clause says neither party has
any liability under or may be deemed to be in breach of this
agreement for any delays or failures in performance, which results from
circumstances beyond the reasonable control. So as COVID is a circumstance
which is beyond the reasonable control of the party, then they're not in breach
for a failure to perform. So say I've got a fish canning factory in Alaska. Could
be nice. COVID comes along the government says
you have to stand down your workers because they need to self isolate. Now
because that would be a circumstance that's out of your control and you can
no longer can fish because your workers can turn up to the factory then you're
excused from any breach or failure to perform. So that's great that means
you're not under an obligation to perform what as long as COVID exists.
But what do you have to do? Well this clause says if you're affected by that
you've got to promptly notify the other party in writing about the cause will
delay and when they cease to do so, so this when they cease to do so. Is a
little bit ambiguous but what you do is you'd write to the other side and say
listen due to COVID we are no longer able to supply you. You know ten thousand tins
of fish a week because we have to stand down our workers. As soon as the
government lifts the ban we will be back up to production capacity within you
know two weeks and that's basically the best you can do
because you do not know how long the COVID stand down may last.
Now then usually there's a clause like this in a contract which then says we'll
look if the circumstance that's causing the delay goes for a period of six
months or more or three months or two months whatever it will be. If that
circumstance continues then either party can terminate the agreement. Which makes
sense because you enter into a contract to do certain things in this case can
fish and the supply tins of fish. If a circumstance arises where you can't do
that, then that's fine you're excused from performing. But if it goes on for a
longer period of time than either party should be able to get out of the
contract. Which will make sense to me. Let's have a look at another one. In this
one done a search for force. The problem with this one not read the problem but
the issue is that Force Majeure event here is defined see capital letters.
Capitals that means it's defined. So we need to go before we look at this clause
we need to go and see what the definition of a Force Majeure event is?
So let me go and find out. So here we go I found the definition of
Force Majeure event in the definition section and it's anything outside the reasonable
control of a party but only if the
non-performing party is without fault in
causing the default or delay. So let's use COVID as the example and my fish
canning scenario.COVID arises that's something that's outside the reasonable
control of the party. The party who is not able to perform due to COVID must
be without fault in causing the delay. So did my fish canning people cause
COVID? Well, no, so that means that clause is okay. Could my fish
canning people have taken steps to prevent the delay?Well, no, they couldn't because the government said
"Look you got to stand down, you've got to self isolate people can't go to work.
So that means this clause is okay as well. Now if
the government said everyone can turn up to work as long as you wear a mask. So
then the fish canning factory would need to
take steps to enable its workers to turn up. Which means that need to buy masks
and make those available so that the fish canning people could still perform
under this contract. But given there's a government stand down. You don't need to
worry about that. And then there's another catch-all which basically says
the delay cannot reasonably be circumvented by the non performing party
at its expense through other means. So in other words could the fish canning
factory put in place other means so that they can still
continue to perform under the agreement. And in this case the answer is clearly
no, there's a government stand down, people can't go to work, people have to
self-isolate. So given that they can't turn up to the factory and do fish
canning. Righto. So now we know under this contract a Force Majeure event has
occurred with COVID. We need to get back to the clause and see what it says. So
let's do that right. Here we are back at the clause and this says if an event
of Force Majeure event arises which by definition we know it has and it
prevents a party from performing its obligations then they're defined as the
affected party the affected party must notify the other party of the event. What
it is? It's COVID and the obligations is prevented from performing. So the
affected party the fish canning people would write to their the people they're
supplying and say "look we were meant to supply you ten thousand tins of fish a
day but due to COVID we can't do that we've been asked to stand down all our
workers. We will stand them down until such time as the government notifies us
that we can go back to work and once the government notifies us that we can go
back to work we will be up and running and at full production capacity within
say two or three weeks. So that written notice has to go out right to satisfy
the obligations under this clause. Then this Clause basically says well you're
you don't have to perform your fish canny duties for as long as that
the force majeure event continues so if COVID
on for six months then for the same period of time the six-month period the
fish canners did not have to supply. And logically then because the Force Majeure
event is something out of the reasonable control of either party then neither
parties liable to the other for any damages. So that's how a force majeure
clause works in this contract. Let's look at one more quickly. In this one there
was no Force Majeure clause is actually called an Unforeseen Events. So that's
the other trick is do a search for unforeseen or events if you can't find
Force Majeure and there should be a clause like this. And it basically says a
party's excused from performing its obligations to the extent it's prevented
by circumstances beyond its reasonable control including but not limited to
acts of nature, natural disasters, acts of war, terrorism, riots, strikes, outside the
party organization so it would be good if virus or pandemic was listed in here
but because it's not that's okay because it says prevented by circumstances
beyond its reasonable control including but not limited to. So that means these
are just some categories but there could be other categories and so COVID is
clearly a circumstances beyond its reasonable control. And so that way a
party is excused from performing. Okay so that's good so you satisfy 33. Right so
then what do you do when such circumstances described above arise? Well
they're about to arise then the affected party must give notice of these
circumstances to the other party as soon as possible or then to find the effect
they'll have on this performance. So basically like I've mentioned but above
the affected party the fish canning people would write to the people they're
supplying and say, "Listen, we're meant to provide you 10thousands cans of fish a
month or so a week we can't do that due to COVID. As soon as COVID ends within
two to three weeks we'll be back up to production capacity. So that's all good.
Once again though you have to notify the other party and then you just got to
take all reasonable efforts to minimize the effect of the circumstance.
So if the government after a month basically says, "Look people can return to
work as long as they keep a distance of 1.5 meters and wear masks." Then you need
to try. You well you need to use your reasonable efforts to try and make your
business operational in supplying tins of fish within those parameters. Now if
for some reason it was not possible because people have to stand within two
feet of other each other on a you know production conveyor belt or something.
Then you might be still off the hook but you might be able to stand people you
know spread them out more and still supply just you know not for ten
thousand tins of fish a week you might actually drop to two or three thousand
but you still at least might be able to supply something. So you will have to you
know under this clause anyway you'd have to make some reasonable efforts to
minimize the effect of COVID delay and so that's how you use COVID to
delay your performance or your delivery under a contract or even potentially get
out of the contract. Have any questions please feel free to get in touch. I hope
you found that useful. Thanks very much!