The COVID-19 pandemic shined a spotlight on issues that can lead to nonperformance. Businesses that thought they had solid contracts to protect their business interests found themselves dealing with sellers who failed to provide products, as promised in their contract. To make matters even worse, these businesses may have found there was nothing they could do about it. The seller may have argued that their non-performance was okay and pointed to a force majeure clause to support their claim.
Force majeure clauses are, essentially, provisions within a contract that allow for non-performance when something happens beyond their control that results in the inability of the party to meet their contractual obligation.
Think the Act of God provision.
Force majeure is literally French for “superior force.” The full extent of these provisions depends on the wording used in each, individual contract. Some may list specific events; others may leave things a bit less defined. In many cases, the coronavirus pandemic qualifies. Even carefully crafted provisions may still be subject to this clause. As noted in a recent piece in Bloomberg, tightly worded force majeure clauses still often include language about unforeseen government action. In our current situation, parties could point to stay-at-home orders as a qualifying event.
This means agreements have been and will likely continue to fall apart globally. Buyers who expected suppliers to meet their demands are left unfulfilled. As such, buyers are likely to push back against future agreements that include these clauses, but will their objections work?
There is a strong likelihood that the wording of these agreements may change. There could also be more flexibility. Instead of solidifying the relationship between one buyer and one seller, the buyer may have more flexibility to get their stock elsewhere in the event the seller cannot meet their contractual obligations. Businesses can always negotiate better terms, but whether or not they will be able to get rid of the force majeure clause altogether remains to be seen.
