How to handle the “F” clause in a contract – known as ‘force majeure’ – in an epidemic / pandemic situation

There’s lot been discussed recently on ‘force majeure’ due to Covid19. A party to a contract suffering ‘force majeure’ is excused or exempted from performing its part of the contract till such time the ‘force majeure’ event exist. Most of the lawyers and CxOs are busy tracing the contracts they have signed and are reading (between the line) the ‘force majeure’ clause to (i) save themselves from performance of their obligations or (ii) to compel the other contracting party to perform or (iii) finding an excuse for not making any payment. There will be lot of learning, including that from the courts, that will come out of the present situation that can be used to carefully draft the ‘force majeure’ clauses in future. Here are my thoughts on what lawyers and CxOs can consider while drafting and negotiating ‘force majeure’ clauses to address an epidemic or a pandemic like Covid19:

1. make sure you include a force majeure clause in your contract.
2. ‘force majeure’ is broader in scope than ‘act of God’ i.e. God won’t come to save you if you are not smart in drafting your contracts ?
3. force majeure clauses are strictly interpreted i.e. you get to eat what you cook. You can claim relief only under those situations which you have specifically included in the ‘force majeure’ clause. You can however use the catch-all or generic phrases like ‘including without limitation’, ‘or similar situations’, ‘or the like’, ‘etc’ but make sure the situations preceding these catch-all phrases are too descriptive to help the reader easily figure-out the real intent of the nature of situations parties intend to cover. Guess work won’t help you!!
4. situation like Covid19 in ‘force majeure’ clause:
5. epidemic and pandemic: if you haven’t included pandemic (in an international contract) or pandemic / epidemic (in a domestic contract) you are in a little bit of trouble. Go and immediately talk to a commercial litigator – lawyers do have different practice areas like doctors.
6. Covid19 may not be classified as an act of God. Don’t be on bhagwan bharose!!
7. Let’s now talk about how to cover a situation like Covid19 in ‘force majeure’ clause to protect a contracting party who wants to ensure strict and timely performance of the other contracting party ‘at any cost’:
8. Epidemic and pandemics like Covid19 could now be a reality of life and anticipate such situations in your contact life-cycle. You may like to ask your contracting party to have plants / service centers across various countries to ensure continuity of performance in the event a country is locked down during an epidemic or pandemic. Ensure this is appropriately captured in the ‘force majeure’ clause that upon a ‘force majeure’ event (like epidemic / pandemic) the contracting party shall immediately and on best commercial efforts commence timely and full performance of its obligations and duties under the contract from an alternate facility which is not suffering any epidemic or pandemic.
9. Carefully think which one of these two phrases ‘epidemic’ or ‘pandemic’ to be used in the force majeure clause. They both have different meaning and different impact. Using both the terms may be helpful. An epidemic is defined as “an outbreak of disease that spreads quickly and affects many individuals at the same time.” A pandemic is a type of epidemic (one with greater range and coverage), an outbreak of a disease that occurs over a wide geographic area and affects an exceptionally high proportion of the population. On March 11, 2020, the World Health Organization officially changed its designation of Covid19, the illness caused by a coronavirus, from an epidemic to a pandemic.
10. Make sure you qualify the words ‘epidemic’ or ‘pandemic’ with “an outbreak” and “as declared by World Health Organization or a government authority”.
11. If your contract is make-or-break for your business, then make sure the other contracting party gives you the top priority when it decides which customer / supplier to support under a constrained capacity.
12. The reason of non-performance should ‘solely be’ attributable to epidemic / pandemic in the geographic area where these were to be performed. But, go back to point (a) above – i.e. your contractor should have already kept alternative arrangements ready to move the performance there – unless such alternate facility is also facing an epidemic or pandemic.
13. The obligations or duties that are not materially affected by the epidemic or pandemic must be timely and fully performed by the contracting party.
14. Your contracting party would certainly be dependent on third party suppliers to preform its obligations or duties under their respective contracts with your contracting part. Make sure your contracting party is passing on your smart ‘force majeure’ clauses to its suppliers, or you specifically write in your contract that your contractor shall not be able to take benefit if your contractor’s supplier is facing ‘force majeure’ situation.
15. Most important part – if you are earning revenue in a contract – make sure full and timely payment by your contracting party is exempted from any force majeure event. Companies / promoters can still use their cash reserves, take financial assistance from banks / third parties or infuse fresh capital to ensure they are making full and timely payments to you for the work you have performed prior to ‘force majeure’ event or during the ‘force majeure’ event.
16. Last but not the least – include a termination right (only given to the party which is not in breach due to ‘force majeure’ event) to have an option to terminate the contract if ‘force majeure’ event is not over within a particular time limit that you can tolerate. But be very careful before exercising your termination right. It may not be easy or cost effective to get a good business partner or may be all the other good business partners are also facing ‘force majeure’ situation.

I can’t finish unless I disclaim that the above is not a legal opinion or a legal assessment of any applicable law. These are just my random thoughts. Consult your legal counsels before signing up to any ‘force majeure’ clause in your contract. These were never and are no longer the so called ‘mid-night’ or 2.00 am clauses.