Force Majeure and the Corona Virus; What it Means for your Financial Health

The below is not to be constituted as legal advice under any circumstances, and may only be construed as legal information.

“Force Majeure” or “Act of God” is a concept in the law which allows people and firms to suspend or terminate contractual obligations, when events beyond their reasonable control prevent them from performing their obligations.

This concept is found in many civil law jurisdictions, including France, much of Europe, and some Asian countries, including those in the Middle East, such as Bahrain, the UAE, Qatar and others. It is also a doctrine which may be invoked under Islamic law in some circumstances. Force Majeure can be invoked whether or not it is specifically described under a written contract. It occurs anytime there is an extreme event, such as the closure of business, due to causes beyond the reasonable control of a party. These events are generally classified as natural disasters, wars, or other extreme happenings. They can also be classified as an outbreak of a contagious illness.

In Common Law countries, such as the UK, US, Canada, Australia, India, Singapore, Hong Kong and others, this doctrine is usually invoked by contract. However, contracting parties can invoke this legal principle in “equity,” meaning that an argument can be made before a court stating that the continuation of the obligation would be “inequitable” or unjust, given factors beyond the reasonable control of a party.

How does this affect you?

If you are an individual, then you are likely to have a number of debts coming due in the next few months. These range from rental payments, to electricity, water and heating bills. You may also have loans or mortgages to pay off. If you feel that you may face difficulty in meeting these obligations, the first step to take is to read through the contracts you signed. Keep an eye out for any explicit “force majeure” or “act of God” clauses. The next step to take is to contact your creditors, and cite these clauses in communications. Usually, a reorganization of payment obligations, and/or a temporary suspension of obligations can be negotiated. However, if your creditor is particularly difficult to deal with, then you may send them an official notice of termination or suspension of your obligations, due to the corona virus outbreak. Do make sure to cite the specific reasons why this outbreak is impacting you and your ability to meet obligations. State that the events are beyond your reasonable control and cannot be remedied while the outbreak continues to interfere with your ability to meet obligations. This could provide you with some leverage or defense, if the creditor eventually decides to take you to court.

If you operate a business, and have debtors, then it is important to proactively reach out to people who owe you, and actively seek to restructure payments. This can prevent things from getting out of hand, by allowing you to comfortably negotiate payments with debtors, and plan for contingencies. Without action, you could face a disaster if a large amount of payment defaults occur at once, and your business has not made a provision for sufficient cash flow at the time. This may also require you to renegotiate and restructure with your own creditors simultaneously as well.

The bottom line is that the Coronavirus situation is an unprecedented event, and can serve as grounds for modifying, or even terminating your contractual obligations, if it is beyond your reasonable control to meet them.

For any further assistance or information, feel free to reach out to us on info@borderlesscounsel.com.